AI debt and French bonds face a stress test — why it may not be over

From AI companies financing data center projects to France’s heavily indebted government, credit markets are flashing warnings as investors grow warier of borrowing risks.

Five-year credit default swap spreads have widened for CoreWeave, Oracle and SoftBank Group, as well as France and Italy, according to CNBC’s analysis of FactSet data. 

AI-related bonds have been selling off as markets raise the cost of capital amid concerns of a financing crunch. Neocloud demand is “off the charts,” Nvidia CEO Jensen Huang told CNBC on Thursday, but he warned of a “scarcity of capital.” “The demand of the capital is much greater than the availability of the capital,” he said, adding, “that’s going to get solved.”

Countries like France face a similar crunch. Pressure is building in bond markets as investors demand more compensation to finance public debt. Recent mass protests and rioting in France have heightened the market’s concerns.

“Markets may no longer want to underwrite massive capex, heavy leverage, and uncertain future cash flows, and that same shift is widening French sovereign spreads as investors demand more compensation to hold long‑duration, debt‑financed obligations from a strained state,”  FedWatch Advisors CIO and founder Ben Emons wrote on his “French Neoclouds” Substack post.

Insurance costs rise for AI-linked debt

CoreWeave, Oracle and SoftBank are at the heart of the AI infrastructure buildout, spanning data centers, cloud services and financing.

Their five-year CDS spreads offer a window into investors’ anxiety about the cost of it all and eventual payoff. Higher spreads mean more expensive default protection and can signal greater concern about a borrower’s creditworthiness.

CoreWeave has experienced some of the sharpest increases in default-protection costs. Its five-year CDS spread reached 1,065.84 basis points on Oct. 21, according to FactSet, reflecting heightened concerns about the debt-heavy company’s ability to finance its expansion.

At the same time Oracle’s spread rose to 308.25 basis points on Oct. 21, up from 141 on Jan. 2. S&P Credit Ratings downgraded Oracle’s debt to the lowest level of investment grade in July, citing the expanding infrastructure business raised the overall credit risk. 

Softbank is a major AI investor with a large stake in OpenAI and investments in data centers and power infrastructure, including an $87 billion commitment for data centers in France. Its five-year CDS spread stood near a four-year high of 432 basis points on Oct. 20, up from 284 basis points on Jan. 5. 

France’s default-protection costs climb above Italy’s

France isn’t in a full-fledged debt crisis, but markets are signaling unease with the cost of protecting against a sovereign default rising above…