AI Credit Swaps Hit Records, With Some Reaching 1,100 Basis Points
Key Facts
The cost of insuring debt at several AI-linked companies reached record levels, while five-year credit default swaps for one leveraged infrastructure borrower surged to 1,100 basis points during the week of October 23, according to a JPMorgan analysis published that day. Separately, SK hynix said on October 23 that its Solidigm unit had halted its review of pre-IPO options and an initial public offering. The company had been considering an offering among financing options for a new U.S. facility to meet growing demand for AI memory. SK hynix attributed the pause to capital market conditions and share-price trends, rather than any change in Solidigm’s growth outlook or investment needs. The decision puts plans to finance expanded memory production to the test amid market volatility, as hedging costs rise for some AI infrastructure companies.
The gap between swap levels points to a wide divergence in how credit risk is assessed across the sector. Swaps for major leaders with strong cash flows ranged from 50 to 120 basis points, according to JPMorgan. By contrast, protection on some investment-grade infrastructure company borrowers approached 300 basis points. The borrower whose swaps reached 1,100 basis points was far above those ranges. The analysis said swap pricing at these levels implied a probability of default of about 50% or more over five years, up from below 30% a year earlier. JPMorgan stressed that this implied probability is "not a forecast."
Hedging activity has increased alongside the expansion of AI-related borrowing. The average weekly value of credit swap trading linked to bonds issued by 7 major companies in the sector exceeded $9 billion in September, compared with less than $2 billion in July, according to data cited by Reuters. AI-related debt issuance reached $466 billion through October 20, 2026, versus $101 billion over the same period in 2025, according to Morgan Stanley estimates cited by Reuters. The increase in trading and debt financing reflects investor interest in hedging risks tied to companies relying on borrowing to fund their investments. Credit default swaps allow investors to buy protection against a bond issuer failing to meet its obligations. Reuters reported that the companies whose swaps rose had not defaulted and had not indicated a likelihood of default.
Record moves were seen in prominent technology names, though at different levels. Five-year credit default swaps for Meta rose to 108 basis points and for Nvidia to 101 basis points during October, levels Reuters described as records. Oracle’s swaps reached about 322 basis points on Monday, October 19, up from 144 basis points at the start of the year. CoreWeave’s five-year debt swaps stood at about 1,090 basis points on October 20. Reuters reported that insuring $10 million of the company’s debt required an upfront payment of $1.82 million. The example highlights the costs infrastructure companies may face when lenders’ concerns about their ability to bear financing costs intensify.
SK hynix said Solidigm’s existing facilities had limited capacity to meet rising demand and that securing additional production facilities in the United States was necessary. The parent company had been considering direct investment in Solidigm alongside raising external financing through an IPO as options to fund the unit’s growth. The potential offering was also linked to supporting shareholder returns through dividends, share buybacks and cancellations. But SK hynix said market volatility had contributed to a broader correction in semiconductor stocks. It had previously said on October 1 that Solidigm’s plans had not been finalized and that it would assess the options based on their economic impact on existing shareholders. The October 23 statement confirms that the pause applies to the review of pre-IPO and IPO options, while the company says the unit’s investment needs and growth outlook remain unchanged.
In the Friday, October 23 session, the Nasdaq Composite fell 0.2%, the S&P 500 dropped 0.5%, and the Dow declined 1.2%, according to the Associated Press. The agency attributed that day’s market pressure to rising oil prices, with Brent crude gaining 3.1% to $116.72 a barrel. Shares of companies that benefited from the AI boom moved erratically amid concerns about the sustainability of elevated valuations and the cost of borrowing needed to fund investments, according to AP. The agency said many companies had borrowed to finance investments in AI technologies. These factors distinguish the sector’s financing pressures from the indexes’ moves in Friday’s session, which the report attributed to oil. The following week, investors were watching results from Alphabet, Microsoft and Amazon to assess returns on AI investments.
SK hynix said it would continue to assess the timing, scale and financing methods for investments, while considering options to support Solidigm’s growth and increase value for existing shareholders. This means the pause in the review does not settle how the additional facilities the company says it needs will be financed. Nor does it change, according to the statement, its assessment of the unit’s growth outlook or investment needs. Direct investment and external financing remain among the options SK hynix outlined for funding Solidigm’s growth. Market attention will turn to results from major technology companies the following week and to what the parent company announces about the timing, scale and financing of its investment.