Wall Street races to protect itself from AI bubble
Banks are lending unprecedented sums to technology giants building artificial intelligence infrastructure while quietly using derivatives to shield themselves from potential losses.
Wall Street finds itself in an unusual position as it prepares to lend staggering amounts to artificial intelligence companies. Even as banks facilitate what may become the largest borrowing binge in technology history, they are simultaneously deploying an arsenal of financial tools to protect themselves from the very bubble their money might be inflating.
The anxiety permeating credit markets tells the story. The cost of insuring Oracle debt against default through derivatives has climbed to levels not seen since the Global Financial Crisis. Morgan Stanley has explored using specialized insurance mechanisms to reduce exposure to its tech borrowers. Across trading desks, lenders are quietly hedging positions even as they publicly champion the transformative potential of artificial intelligence.
Unprecedented Wall Street lending to technology giants
Mega offerings from Oracle, Meta Platforms and Alphabet have pushed global bond issuance past $6.46 trillion in 2025. These hyperscalers, alongside electric utilities and related firms, are expected to spend at least $5 trillion racing to build data centers and infrastructure for technology promising to revolutionize the global economy.
The scale is so immense that issuers must tap virtually every major debt market, according to JPMorgan Chase analysis. These technology investments could take years to generate returns, assuming they deliver profits at all. The frenzied pace has left some lenders dangerously overexposed, prompting them to use credit derivatives, sophisticated bonds and newer financial products to shift underwriting risk to other investors.
Technology that may not translate to profits
Steven Grey, chief investment officer at Grey Value Management, emphasized that impressive technology does not automatically guarantee profitability. Those risks became tangible last week when a major outage halted trading at CME Group and served as a stark reminder that data center customers can abandon providers after repeated breakdowns. Following that incident, Goldman Sachs paused a planned $1.3 billion mortgage bond sale for CyrusOne, a data center operator.
Banks have turned aggressively to credit derivatives markets to reduce exposure. Trading of Oracle credit default swaps exploded to roughly $8 billion over the nine weeks ended November 28, according to analysis of trade repository data by Barclays credit strategist Jigar Patel. That compares to just $350 million during the same period last year.
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