SINGAPORE/LONDON: The cost of insuring against defaults by technology companies hit record highs on October 15 as investors grew increasingly concerned about the debt financing the artificial intelligence investment boom.

Heavily indebted data center operators were hit hardest, with hotter-than-expected U.S. inflation and expectations for higher interest rates raising questions about how quickly massive AI investments can generate enough returns to service mounting borrowing costs.

Five-year credit default swap spreads for CoreWeave surged past 1,100 basis points, according to S&P Global Market Intelligence data, while the yield on the company's 2031 bond rose as high as 16 percent before retreating to around 14 percent.

CoreWeave, a loss-making "neocloud" company, owes nearly US$50 billion, according to LSEG data.

"CoreWeave is quickly becoming the AI trade's canary in the coal mine," said Kathleen Brooks, research director at XTB.

"Its bonds have sold off sharply ... this is a sign that investors might be going off the AI investment narrative, which has included massive debt issuance to fund AI ambitions."

Credit default swaps, or CDS, measure the cost of protection against a borrower defaulting. Wider spreads indicate greater perceived credit risk. A 1,000-basis-point spread for CoreWeave implies a 64 percent risk of default over the next five years, up from around 30 percent a year ago.

Oracle, which has also drawn investor concern over its borrowing, saw its CDS approach 300 basis points, up about 31 basis points this week. CDS for Nvidia, STMicroelectronics and SpaceX also rose sharply.

Default-swap spreads for Amazon, Alphabet and Meta also traded at record highs, according to LSEG and S&P Global Market Intelligence data, although they rose much more slowly than those of Oracle and CoreWeave.

CoreWeave shares fell another two percent on October 15 after sliding 15 percent on October 14, wiping out nearly a fifth of the company's value in two days.

A surge in quarterly revenue at AI developer Anthropic did little to ease investor concerns. Its third-quarter revenue rose 45 percent from the previous quarter to $16.8 billion, according to an investor who attended a pre-IPO meeting with company leadership.

Earlier this week, Broadcom Chief Executive Hock Tan compared the investor rush for anything AI-related to "casino gambling."

"This is not the first time we've had a sizeable market wobble on the back of AI fears, but as we move to a capex cycle funded out of debt rather than simply free cash flow, we have to increasingly respect the credit price action. AI financing costs aren't dramatic overall, but there are worrying themes at the edges," Deutsche Bank strategist Jim Reid said.