AI Credit Worries Send Default Insurance to Record High

The cost of insuring against tech defaults reached record highs on Thursday, as investors hedged against credit stress in the artificial intelligence (AI) sector. Heavily indebted data center operators, such as CoreWeave, were particularly affected, with their five-year credit default swap (CDS) spreads exceeding 1,100 basis points. This development is linked to hotter-than-expected US inflation data and increased expectations for higher interest rates, raising concerns about the ability of highly leveraged companies to generate sufficient returns to service mounting interest costs.