Exclusive-Weinstein's Saba sells credit derivatives on Big Tech as AI risks grow, source says

Hedge fund Saba Capital has been selling credit default swaps to banks and large asset managers seeking protection on big-tech names including Oracle, Microsoft, Meta, Amazon and Alphabet amid concerns that heavy, debt-financed AI investment could become a bubble; sources say this is the first time Saba has offered protection on some of these companies and the first time banks have requested such trades. CDS levels have risen—Oracle and Alphabet at two‑year highs and recent jumps for Meta and Microsoft—though spreads remain low versus riskier sectors, and dealers and clients are using the contracts as hedges against rising tech bond issuance and potential equity-market fallout, according to bank notes from Goldman Sachs and Deutsche Bank.

Analysis

Saba Capital has been selling credit default swaps to banks and large asset managers seeking protection on big-tech names — Oracle, Microsoft, Meta, Amazon and Alphabet — amid concerns about debt-financed AI investment, according to a Reuters source. Banks and a private credit fund bought CDS to shield exposure as these companies borrow to fund multi‑billion‑dollar AI projects, and dealers say this is the first time Saba has offered protection on some of these names and the first time banks requested such trades.

Market signals show CDS prices rising: Oracle and Alphabet CDS are at two‑year highs and S&P data records recent jumps for Meta and Microsoft, while overall spreads remain low versus riskier sectors. Client notes from Goldman Sachs and commentary from Deutsche Bank point to increased demand for equity and credit hedges tied to a surprise surge in AI‑related corporate bond supply and as a general hedge against concentrated positive AI positions.

The activity indicates growing tail‑risk concern that an AI funding correction could transmit from equity to credit markets, yet current pricing suggests default probabilities for these large tech issuers are still judged low. Investors should therefore watch CDS spread trajectories, forthcoming corporate bond issuance linked to AI projects, and any broadening of credit curves as indicators that the market view of risk is shifting materially.

Key Decisions for Investors

• Monitor CDS spreads for ORCL, GOOGL/GOOG, MSFT and META and treat sustained widening beyond recent two‑year highs as a trigger to hedge or trim exposure to equity or credit positions in those names,
• Limit incremental leverage or large new buys into companies that have recently increased debt to fund AI projects until bond issuance details and use‑of‑proceeds are transparent,
• Consider targeted, size‑controlled protection (short‑dated CDS, credit ETFs or equity puts) against a sector correction tied to an AI funding pullback while keeping hedge sizes modest given spreads remain low relative to riskier sectors