AI credit stress deepens as Nvidia CDS hits record 82 bps

Nvidia's five-year credit default swap spread surged to a record 82 basis points Monday, the largest single-day jump since the contract began trading in November 2025, as investors priced in default risk from the AI infrastructure financing loop.

"While Nvidia's investments and partnerships reinforce confidence in long-term AI buildouts, investors remain concerned about circular financing," said Gary Tan, a portfolio manager at Allspring Global Investments.

Oracle's CDS spread hit a record 212 basis points, while Apple's stood at 35 basis points, Meta's at 87 and Microsoft's at 51, according to ICE Data Services. Nvidia shares fell nearly 5 percent to $196.51, stripping roughly $250 billion from its market value and handing the title of world's most valuable company back to Apple.

The credit market reaction threatens to raise borrowing costs for the very companies driving the $489 billion in AI-related debt raised globally this year, according to Goldman Sachs, a figure that has already surpassed the bank's full-year 2025 estimate of $322 billion.

Circular Financing Draws Scrutiny from Regulators

The concern centers on a structural loop: Nvidia takes equity stakes in or guarantees debt for customers such as OpenAI and CoreWeave, which then spend the money on Nvidia hardware, making demand appear stronger than underlying end-user appetite. Both the International Monetary Fund and the Bank for International Settlements have flagged AI circular financing as a systemic downside risk.

"It's as much a reminder of funding strain in the AI buildout as it is a demand signal," said Billy Leung, an investment strategist at Global X Management.

Nvidia Chief Executive Officer Jensen Huang has rejected the framing, arguing the company's stakes are small relative to what its partners raise elsewhere. "The idea that it is circular is ridiculous," he said in January.

Off-Balance-Sheet AI Commitments Reach $1.65 Trillion

Nvidia has announced more than $540 billion of such deals in 2026 alone, excluding a potential arrangement to guarantee as much as $250 billion so OpenAI can lease a 10-gigawatt data center campus in Ohio. The tally includes a $500 billion-plus AI initiative with SK Group on the Korean Peninsula and a $1 billion investment in Naver Corp to fund an AI data center in South Korea.

The pattern extends beyond Nvidia. Google agreed to backstop lease payments at five data center sites for Anthropic, helping the OpenAI rival obtain what amounts to a $35 billion loan. Much of this obligation sits outside standard debt disclosure — Japan's Nikkei estimated major AI companies hold around $1.65 trillion in off-balance-sheet commitments.

Nvidia also announced a long-term partnership with Safe Superintelligence, the lab founded by OpenAI co-founder Ilya Sutskever, worth $5 billion. The arrangement gives SSI access to Nvidia's Vera Rubin platform and will increase its compute by an order of magnitude.

For investors, the question is whether the AI infrastructure spending will generate sufficient returns. Alphabet raised concerns after reporting its first quarter of negative free cash flow since becoming a public company in 2004. Nvidia shares have lost roughly $250 billion in market value this week alone, trading at about 35 times forward earnings.

This article is for informational purposes only and does not constitute investment advice.