Rising AI-related debt issuance, widening tech CDS spreads: Is there a cliff up ahead?

Just this week: AI cloud provider Nebius Group announced an upsized $5 billion convertible bond sale, after having announced a sale of $4 billion in convertible bonds in March, in the wake of a deal with Meta. AI storage firm Backblaze announced a private offering of $175 million. AI infrastructure firm WhiteFiber announced a private CB offering of $270 million.

Markets still believe there will be a payoff; Backblaze and Nebius shares have skyrocketed by 250% and 155%, year-to-date.

But some investors, amid growing worries about mushrooming hyperscaler debt, have begun hedging their risk in the form of credit default swaps. The explosion among tech giants' CDS spreads suggests mounting suspicions that markets believe they have borrowed too much and a reckoning of some sort looms on the horizon.

"Part of the reason why we're very underweight a lot of those tech names, is the amount of spending," Paul Nolte, senior wealth advisor and market strategist at Murphy & Sylvest, tells Reuters. "Are they going to be able to cover the bill?"

Markets have been rattled in recent sessions by the upswing in long-term interest rates occurring at a time when corporate America is driving a huge surge in debt demand to finance lofty AI-related ambitions.

More than $85 billion in convertible bond issuance, spread over 127 deals, occurred during the first six months of 2026, according to ION Analytics.

Roughly half of that issuance is directly or indirectly related to AI endeavors, which are showing few signs of abating.