Apollo Global Management warned on Wednesday that corporate debt issued by the giant cloud‑computing providers fueling the AI boom is becoming riskier.
Risk‑insurance contracts known as credit default swaps (CDS) for hyperscaler bonds are becoming more expensive, and Apollo chief economist Torsten Slok noted this isn’t simply due to banks hedging more as bond issuance climbs.
The market is now repricing hyperscaler credit fundamentals, namely a debt‑financed AI capital‑expenditure cycle marked by rising leverage, negative free cash flow and uncertain returns on depreciating assets, Slok wrote.
If dealer hedging of new bonds were driving the rise in risk‑insurance costs, the widening would be reflected in the bond issuers themselves – the banks. That is not what is occurring.
Widening gap
The spread between hyperscaler CDS and bank CDS has widened to roughly 60 basis points from near‑zero in October 2025, indicating that hyperscaler credit risk is rising on its own merit, according to Slok’s analysis.
Apollo’s warning follows weekend comments by leaders of frontier large‑language‑model (LLM) firms, who said they intend to slow the pace of product advancement because of safety concerns—a shift that could have financial repercussions for the cloud providers powering those models.
Many Wall Street observers believe the frontier‑model companies are lobbying for Washington regulation that would shield them from startup competition and limit legal liability for autonomous agents.
“What I believe they’re really shooting for is the Communications Act treatment that protected the social‑media guys,” said Dan Alpert, founding managing partner of Westwood Capital. “They want some legislation that ‘regulates’ them, but what it really does is absolves them.”
Section 230 of the Communications Act of 1996 states that “internet platforms would not be treated as publishers of third‑party content” and that “platforms would not be held liable for user‑posted content,” per the National Association of Attorneys General.
“The banks have built up … fortress balance sheets … They have built up a significant equity buffer and they are now much more highly diversified in their exposure than they were during the mortgage crisis,” Alpert said. “That is where the answer may lie in terms of the way the market is looking at the credit risk.”
Too soon to worry
Technology investors argue that hyperscaler margins are improving, justifying the debt issuance, and that it is too early to be concerned about the widening CDS spreads.
“[Hyperscalers] don’t really add their capacity in a significant enough way into 2027 and 2028 to know how this is going to turn out,” said Paul Meeks, head of technology research at Freedom Capital Markets. “We’re starting to see a turn to the positive in their margins, and if we continue to see this, there will be less concerns.”
Alphabet has a forward debt-to-equity ratio of 13% and forward free cash flow of negative $25.7 billion, according to FactSet.
Amazon has debt-to-equity of 23% and free cash flow of negative $30 billion. Meta Platforms has debt-to equity of 34% and free cash flow of negative $25.7 billion. Microsoft has debt-to-equity of 7.34% and positive free cash flow of $33.4 billion.
Economists are also monitoring hyperscaler credit conditions closely following Apollo’s Wednesday warning on credit default swaps.
“The issue here is that CDS investors—who are among the most sophisticated investors (possibly wrong, but definitely in the weeds)—are assigning far greater risk to the debt of the world’s most profitable companies,” said Dean Baker, founder of the Center for Economic and Policy Research. “They obviously think there is a substantial risk that the AI companies cannot make good on their commitments.”