Google’s credit risk is seen as rising amid worries about its debt-funded AI spending

The cost of five-year credit default swaps on Google’s debt rose 5.3 basis points to 84 basis points a year, according to ICE Data Services data, Bloomberg reports. That marks the biggest increase since September 21. The cost of insuring against default likewise rose for other companies, including AI developer and Facebook parent Meta Platforms and chipmaker Broadcom. CDS prices rise when investors perceive a higher risk of a company defaulting.

Google parent Alphabet reported third-quarter revenue below analysts’ expectations on Wednesday. The company posted negative free cash flow for a second consecutive quarter, with a cash outflow of $9.1 billion versus $5.9 billion in the second quarter. Alphabet’s long-term debt rose 479% over the last year, from $21.6 billion to $125.1 billion. Meanwhile, its advertising business, a crucial source of funding for Alphabet’s massive AI investments, posted its slowest revenue growth in more than a year.

Shareholders could reap huge gains if AI investments pay off, but debtholders bear the losses if things unravel, argues Gavan Nolan, executive director for fixed-income pricing at S&P Global Market Intelligence. Bond investors are closely watching capital spending and when AI revenue will translate into positive free cash flow, he said. “In some way credit is telling a bit of a different story than equities when it comes to the tech sector,” Nolan told Bloomberg.

Trading volume for credit default swaps tied to the debt of the 10 largest hyperscalers and chipmakers surged more than eightfold from the start of the year through the end of last week to $176 billion, according to an analysis of trade repository data by Barclays credit strategist Jigar Patel. Some of these instruments, including CDS on SpaceX’s debt, only began trading in recent months.

Swaps on cloud giant Oracle’s debt are the most actively traded, Patel notes. Trading volume in 2026 has risen almost sixfold versus last year to $46.8 billion. The company’s stock has fallen almost 50% over the last 12 months amid market concerns about its heavy debt load. Oracle’s debt stood at around $125 billion at the end of August. The company raised $43 billion through bond issuance in the previous fiscal year and plans to raise about another $40 billion through debt and equity financing in the current fiscal year. It has already raised half that amount, $20 billion, through stock sales.