Wall Street traders are increasingly hedging exposure to Big Tech credit as hedging activity tied to AI-era borrowing surges, pushing outstanding credit default swap (CDS) volume to record levels.

In a Wednesday post on X, The Kobeissi Letter stated that the total net notional value of outstanding credit default swaps on major tech firms jumped to a record $12.5 billion. It is up $1 billion so far in the second quarter of 2026.

The total value of debt being insured against default on these companies has risen 500% since the second quarter of 2025.

Big Tech With Highest CDS Exposure

Oracle Corp. (NYSE:ORCL) leads the pack with $6.5 billion, followed by Amazon.com Inc (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) at $2 billion each. Microsoft Corp. (NASDAQ:MSFT), Meta Platforms Inc. (NASDAQ:META), and Nvidia Corp. (NASDAQ:NVDA) stand at $1 billion, $800 million and $200 million, respectively.

The increase in protection comes amid growing concerns over a potential AI bubble. The sector is undergoing substantial investment while simultaneously facing rising costs and inflation pressures.

Jordi Visser, head of AI Macro Nexus Research at 22V Research, noted that about 12% to 18% of a projected $8 trillion AI infrastructure buildout has been completed so far, highlighting potential supply chain bottlenecks in key components like high-bandwidth memory chips and power systems.

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Hedging activity at Bank of America Corp. (NYSE:BAC) surged. The monthly notional trading volumes of Big Tech CDS at BAC have soared 900% since the start of 2025. "Most of these CDS contracts did not trade actively until 2025," the letter revealed.

AI Borrowing Surges

The letter stated, "Corporate borrowing tied to AI is exploding."

Famous investor Michael Burry warned that current high-yield debt levels dangerously mirror the 1999 tech bubble or the dot-com era, raising red flags on the AI financing boom. Burry’s insights suggest that the current surge in corporate borrowing linked to AI, which has also driven a massive 49% of investment-grade bond issuance year-to-date, could mirror past mistakes that led to significant market corrections.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by a Benzinga editor.

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