America’s largest technology companies have accumulated more than $US670 billion in debt to finance the artificial intelligence boom. Rising credit default swap prices are also raising concerns for Australian superannuation funds
The enormous investment race in artificial intelligence is changing the financial profile of America’s biggest technology companies.
The so-called Magnificent Seven now carry a combined $US671.9 billion in outstanding debt, while the cost of financial protection against corporate default is rising sharply.
The clearest warning comes from credit default swaps, commonly known as CDS. For some major US technology companies, the price of these contracts has reached record levels.
This does not mean a collapse is certain. It does, however, show that investors are demanding greater protection against the possibility that massive AI investments may fail to generate the expected returns.
What are credit default swaps?
Credit default swaps are financial derivatives used to protect investors against the risk that a company or borrower may fail to repay its debt.
The buyer pays an annual premium to another party that agrees to absorb some or all of the loss if the borrower defaults.
For example, a CDS priced at 1 per cent on a $2 million exposure would cost the buyer $20,000 a year.
When demand for these contracts rises, their price usually increases. Wider CDS spreads therefore indicate that investors are becoming more cautious about a company’s creditworthiness.
According to the International Swaps and Derivatives Association, global CDS market activity reached a record $US41.8 trillion in 2025, surpassing the previous peak of $US38.7 trillion recorded in 2022.
AI infrastructure is driving the borrowing boom
The central concern is the extraordinary amount of money required to build data centres, cloud infrastructure, energy systems and computing capacity for artificial intelligence.
In the early phase of the AI boom, much of the spending was funded through the cash flows of major technology companies.
Now, more firms are relying on bonds and other forms of debt.
Analysis by Montgomery Investment Management suggests major technology companies have doubled their debt issuance over the past six months.
Oracle, CoreWeave and other infrastructure providers are increasingly borrowing to construct the physical backbone of the AI economy.
Oracle at the centre of investor concern
Oracle has become one of the most closely watched companies in the market.
In September 2025, it entered into a reported $US300 billion cloud expansion agreement with OpenAI.
Investor concerns have since grown over the amount of debt required to support this and other projects.
Oracle’s CDS pricing reportedly rose from just above 0.4 per cent in September 2025 to more than 1.6 per cent by March, before climbing above 2 per cent.
US investment fund founder Dan Rasmussen has argued that Oracle is the most leveraged company among its peers because of its limited free cash flow relative to its debt.
Cash flow is under pressure
The issue is not simply how much debt these companies hold, but whether they are producing enough cash to repay it.
Rasmussen said that in several cases free cash flow had weakened significantly, cash balances had declined and debt levels had increased.
That means the ratio between available cash and outstanding debt is deteriorating.
Should AI investments fail to generate strong revenue quickly enough, those financial ratios could worsen further.
The largest technology companies remain highly profitable, but their future valuations increasingly depend on their ability to turn enormous AI spending into sustainable income.
The danger of circular financing
Another source of concern is the growing financial interdependence between companies in the AI sector.
Microsoft, for example, helps finance OpenAI while also integrating its models into Microsoft’s own cloud products.
Other companies purchase computing services from businesses that are themselves funded by major technology firms or institutional investors tied to the same ecosystem.
This has raised fears of circular financing.
If one major company in the system falters, the financial impact could spread to others through contracts, investment arrangements and infrastructure commitments.
Roger Montgomery warned that a prolonged delay in AI revenue would not remain confined to technology companies.
It could affect semiconductor manufacturers, electricity networks and eventually the broader economy.
Wall Street is heavily concentrated in seven companies
The Magnificent Seven account for about 30 per cent of the US share market.
That level of concentration means a major correction in technology stocks could have consequences far beyond one industry.
A downward revision in AI expectations could trigger a broader reassessment of equity valuations across Wall Street.
Investors are also concerned about rising US government bond yields.
Higher Treasury yields increase borrowing costs and make it more expensive for companies to refinance debt, particularly when expected returns may take years to materialise.
Why Australian superannuation is exposed
The risks are not limited to the United States.
Australia’s superannuation industry is worth about $4.5 trillion, with a significant portion invested in international markets.
According to the Association of Superannuation Funds of Australia, roughly 20 per cent of Australian superannuation assets are linked to Wall Street.
Because the largest US technology companies dominate major share indexes, millions of Australians are indirectly exposed to them through their super funds.
A sharp fall in technology stocks could therefore reduce superannuation balances, particularly for people close to retirement or those with portfolios heavily weighted towards international shares.
Interest rates and inflation add to uncertainty
Sonal Desai, chief investment officer at Franklin Templeton Fixed Income, has warned that financial markets are already adjusting to higher economic and policy uncertainty.
Bond yields are rising as investors consider the effects of loose US fiscal policy, inflation risks and the direction of monetary policy under Federal Reserve chair Kevin Warsh.
Higher interest rates increase the cost of refinancing and make long-term technology projects more difficult to justify.
They also create additional volatility in markets already affected by geopolitical instability and uncertainty over future AI revenues.
Not all Big Tech companies face the same risk
Some analysts have cautioned against treating the Magnificent Seven as a single financial group.
Rodney Comegys, chief investment officer at Vanguard Capital Management, noted that the companies have very different business models, debt levels, cash reserves and sources of revenue.
Some hold enormous cash balances and highly profitable core businesses, while others are more dependent on borrowing or future AI growth.
This makes it unlikely that all seven companies would fail or suffer major losses at the same time.
They share a market label, but not the same level of risk.
A warning signal, not proof of collapse
Record CDS prices do not prove that a Big Tech crash is imminent.
They do show that investors are paying more to protect themselves against the possibility that massive AI spending may not produce returns quickly enough.
The central question is whether new data centres, advanced models and digital infrastructure will generate sufficient revenue to justify hundreds of billions of dollars in borrowing.
The AI boom has been built on expectations of extraordinary economic transformation.
An increasing share of that bet is now being financed through debt.
And when borrowing grows faster than profits, even the most promising technology story can become a threat to markets, investors and retirement savings.
