SoftBank CDS at 432bp, more than triple Nissan's

Share price drops 6.2%, down roughly 50% from June peak

Big tech CDS weekly volume hits $9 billion

Oracle, Meta, Nvidia credit risk on the rise

The SoftBank Group logo is displayed at the company's headquarters in Tokyo, Japan, on Sept. 24. [AFP]
The SoftBank Group logo is displayed at the company's headquarters in Tokyo, Japan, on Sept. 24. [AFP]

The credit risk of Japan's SoftBank Group, which has led the global AI investment boom, has soared to its highest level in roughly four years as the financial strain from massive AI spending prompts investors to hedge against the possibility of default. In the United States, trading in credit default swaps — instruments that protect against corporate defaults — tied to major big tech companies including Oracle, Meta and Nvidia has jumped more than fourfold in just two months, signaling that concern over the financial health of AI-driven companies is spreading into bond markets.

According to Bloomberg on Tuesday (local time), SoftBank Group's five-year CDS premium reached 432 basis points (1bp = 0.01 percentage point) that day, its highest level in roughly four years since early November 2022. The reading marked an additional rise of about 30bp after the premium crossed 400bp a week earlier.

A CDS is a financial derivative that allows investors to protect against losses in the event a company fails to repay its debt. A higher CDS premium signals that the market perceives greater credit risk for the company in question.

SoftBank's CDS premium is the highest among major Japanese companies — more than triple the 130bp recorded by Nissan Motor, the second-highest. The gap underscores how differently the market views the financial burden of AI investment, even among large Japanese conglomerates.

The surge in SoftBank's credit risk reflects its aggressive AI investment strategy and the prospect of further acquisitions. The company has been pouring large sums into AI-related projects while also exploring a potential acquisition of security firm Allied Universal. Concerns are mounting that any additional deal, against a backdrop of rising borrowing costs, could deepen the company's financial strain.

Bloomberg Intelligence projected that SoftBank will face a cash outflow of at least $6 billion in the fiscal year ending March 2027.

The last time SoftBank's CDS premium reached its current level — November 2022 — the company was in financial defense mode after its flagship Vision Fund posted heavy losses. The market is now assigning a similar degree of credit risk to the financial burden stemming from the company's AI expansion.

Investor wariness was also visible in equity markets. SoftBank Group shares fell 6.2 percent on the Tokyo Stock Exchange as of 2:35 p.m. Tuesday, trading at 4,545 yen ($29) — down roughly 50 percent from their June peak.

Concerns over credit risk tied to AI investment are spreading to major US big tech companies as well.

Citing Morgan Stanley research, the Financial Times reported that the weekly average trading volume of CDS linked to bonds issued by major AI-related companies — including Oracle, Meta Platforms and Nvidia — jumped from under $2 billion in July to $9 billion in September, a rise of at least 4.5 times in just two months.

The cumulative trading volume of the US corporate bond CDS index this year has already surpassed the full-year total for last year, reflecting growing demand across bond markets to manage credit risk associated with expanding AI investment.

CDS premiums for individual companies have also hit successive highs. Meta's five-year CDS premium rose to 108bp, while Nvidia's climbed to 101bp. Alphabet and Amazon also reached record levels.

Oracle's credit risk stood out in particular. The company's five-year CDS premium reached 322bp on Monday, more than double the 144bp recorded at the start of the year, as its large-scale investment in AI infrastructure and the associated financing burden drew growing market attention.

The highest credit risk among the group belongs to CoreWeave, an AI cloud infrastructure provider. Its five-year CDS premium soared to around 1,090bp.

To insure against default on $10 million of CoreWeave's debt, an investor would need to pay $1.82 million upfront at the time of contract — roughly 18 percent of the principal.

Markets have also flagged the tight financial interconnections among AI companies as a risk factor. Semiconductor makers, cloud providers and data center operators are linked through investment and supply agreements, meaning a deterioration in one company's finances could ripple through to others.

The Financial Times noted that the complex financial ties within the AI industry are amplifying bubble concerns.

However, a rise in CDS premiums does not necessarily mean that the actual probability of corporate default has increased sharply. Premiums can also climb when investors actively buy insurance-like instruments simply to hedge against risk.

Even so, the trend is drawing attention as evidence that the AI investment surge is beginning to affect not only equity markets but also corporate borrowing costs and credit risk assessments. As growth expectations for AI companies remain intact, how they will finance and repay the enormous capital required for continued investment is emerging as a new focal point for markets.


sjy@heraldcorp.com