(Oct 29): The cost of insuring against losses on Alphabet Inc’s debt rose on Thursday as its shares plummeted, after disappointing results intensified fears that its massive bet on debt-funded artificial intelligence (AI) spending may fail to pay off.

The price of five-year credit default swaps on Google’s debt, which increases as investor concern grows, rose as much as 5.3 basis points (bps) to 84bps a year, according to ICE Data Services. It’s the biggest increase since Sept 21. Costs also rose for the likes of fellow hyperscaler Meta Platforms Inc and chip company Broadcom Inc.

The Google and YouTube parent reported weaker-than-expected revenue for the third quarter. That includes ad sales, a critical for financing Alphabet’s massive AI investments and which posted its lowest growth in more than a year. 

While equity investors could see huge gains if AI investments pay off, debtholders bear the pain if things unravel, according to Gavan Nolan, fixed-income-pricing executive director at S&P Global Market Intelligence. Bond investors are laser-focused on capital spending and when AI revenue will be free cash flow positive, he added.

“In some way credit is telling a bit of a different story than equities when it comes to the tech sector,” Nolan said in an interview.

Trading volume for CDS tied to the 10 largest hyperscalers and chipmakers surged more than eightfold this year to US$176 billion (RM7171.42 billion) through last week, according to an analysis of trade repository data by Barclays plc credit strategist Jigar Patel. Some of the swaps, like for SpaceX, have only started trading in recent months.

Most active are Oracle Corp swaps, Patel said, with 2026 volume rising by nearly six times from last year’s level to US$46.8 billion.

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