Investors have begun to relax after a short bout of turbulence in the market for artificial‑intelligence‑linked debt, yet a series of high‑profile earnings releases will soon put that sentiment to the test. Oracle is set to host its Investor Day on Wednesday, while the two biggest hyperscalers, Alphabet and Amazon.com, will disclose quarterly results after the market close on Wednesday and Thursday respectively.
Credit markets react to recent developments
Credit‑default‑swap (CDS) spreads that had surged earlier this week have started to contract, a shift that analysts attribute to Meta Platforms’ announcement of a $95 billion stock offering on Monday. The move helped pull down Meta’s CDS spreads, which had risen after the company reported negative free cash flow for the third quarter. Other tech issuers also saw spreads ease, though they remain elevated compared with pre‑AI‑debt levels.
“Just the absence of the bond deal itself is a direct catalyst for AI‑related spread tightening,” said Richard Cheng, head of Nuveen’s investment‑grade corporate sector team. Cheng noted that investors had been expecting Meta to launch a sizeable bond issuance shortly after its earnings, and the decision not to do so was taken as a relief.
According to CNBC contributor Paul Meeks, head of technology research at Freedom Capital Markets, the recent market action suggests that “credit fears may have been overblown.” He added that the improved mood, while not necessarily a sign of a strong rebound, could persist as companies report their quarterly numbers in the coming weeks.
Despite the recent tightening, CDS spreads remain wide on a year‑to‑date basis because of a flood of new debt and a trend of negative cash flows across the AI sector. Meta’s spread, for example, is up 177 % YTD, while Amazon’s has risen 129 %. Bond yields, too, stay elevated, reflecting a market dynamic that analysts at CreditSights describe as “80 % driven by technicals and sentiment rather than fundamentals.”
Upcoming earnings and capex outlook
Alphabet and Amazon are the next major tests for the tech bond market. Both companies posted negative free cash flow in the second quarter, and analysts anticipate the trend will continue. FactSet consensus estimates project Alphabet will record a free cash flow deficit of $2.3 billion and spend $55.2 billion on capital expenditures in the third quarter. Amazon is expected to post a $9.9 billion free cash flow shortfall against $58.7 billion of capex.
S&P Global Ratings warned in an August report that the hyperscalers could see negative free operating cash flow through 2026 and 2027. While the sheer scale of spending signals robust demand for AI, as Meeks observes, the hyperscalers “have decided that… this is worthwhile spending, and not just worthwhile; it’s required.”
Cheng stresses that the critical factor for investors will be the guidance on capital spending, rather than the absolute numbers. “The singular focus on the investors’ minds is really what the capex guidance trajectory looks like across the hyperscaler space,” he said.
Oracle’s credit position under scrutiny
Oracle’s upcoming Investor Day may prove more consequential for credit markets than the hyperscaler earnings. The software giant has accumulated $117 billion of long‑term debt and currently holds an investment‑grade rating of BBB‑, the lowest tier above junk status according to S&P. Analyst Jordan Chalfin of CreditSights notes that Oracle is “the most important IG tech credit, given how it trades more like a high‑yield issue despite being investment grade.”
Complicating the AI‑debt narrative, S&P highlighted that many tech firms use off‑balance‑sheet arrangements—such as data‑center leases and chip purchase commitments—that are not reflected in traditional debt metrics. “There are commitments they are entering into, for example, into data center leases or purchase commitments on chips that aren’t necessarily treated as debt,” explained Mark Habib, digital infrastructure sector lead at S&P Global Ratings.
Nevertheless, the broader hyperscaler cohort maintains credit ratings comfortably above the A level, reflecting diversified revenue streams and ample capacity to service interest. Cheng concludes that while some repricing has occurred, there is no imminent credit crisis: “They continue to have exceptional credit profiles, strong cash generation liquidity… The market is really not concerned about credit quality at this point.”
As Oracle, Alphabet and Amazon disclose their financials, market participants will watch closely to see whether the recent easing of AI‑related credit spreads endures or gives way to renewed caution.
Mitchell Landsberg is a Senior Technology Correspondent at News Raise. He covers consumer electronics, artificial intelligence, software developments, and digital privacy trends.
