Jefferies global head of equity strategy Christopher Wood described the situation as a credit card being taken away from AI builders. Wood said in a note that the most plausible way the AI capex arms race will end is that the credit card will be taken away. That is not happening yet, but credit markets have been spooked by the new political landscape, seeing more hurdles to data centers under Democratic governors in key states and a Democratic-controlled Congress.
The yield on CoreWeave's 2032 bond, which carries a 9.625% coupon, has climbed above 16%. CoreWeave's five-year credit default swaps spiked above 1,289 basis points on Thursday, widening above their October peak, before easing 8% Friday to around 1,155, according to Deutsche Bank.
Deutsche Bank's global head of macro and thematic research Jim Reid said in a note that there have been plenty of warnings from the credit space. Debt and equities are now moving more in sync, he added, so we'll have to see if credit goes any further.
Investors are demanding more compensation to insure against default among companies with the strongest balance sheets, including Nvidia, Broadcom and Amazon. Credit default swaps on Nvidia debt are up 76% in the last month, Broadcom's up 49%, and Amazon's up 44%. Their CDS remain low on an absolute basis, Nvidia's stood at roughly 139 basis points compared with about 298 for Oracle and roughly 1,100 for CoreWeave.
The market is now grappling with the prospect that at least some data center spending will be delayed or scrapped under incoming Democratic governors in Ohio, Texas and Georgia, the three states with much of the planned capacity. Moratoriums could impact 45% of planned capacity in the US, with a large amount in Texas, according to Goldman Sachs. Texas governor-elect Gina Hinojosa has said she is not opposed to data centers but wants a moratorium until the state legislature passes protections for communities.
National Economic Council Director Kevin Hassett told CNBC on Friday that he expects data center growth to continue as forecast, despite Democrats' big election wins.
Goldman Sachs tallies five AI bond deals totalling $67 billion since October 29, pushing total hyperscaler debt issuance this year to $296 billion. It forecasts $440 billion of hyperscaler debt issuance next year, plus an additional $300 billion of project-level issuance across investment-grade and high-yield.
Goldman analysts said hyperscalers collectively reported negative free cash flow in the third quarter as capital spending exceeded operating cash flow. Delayed monetization and growth in purchase commitments are the key risks to more debt issuance, subject to market conditions, according to the bank.
Bank of America estimates AI-related credit issuance will rise 31% from 2026 to 2027, hitting $685 billion, then fall 23% to $531 billion in 2028. It noted downside risks to these forecasts from a potential slowdown in AI infrastructure projects following the Blue Wave, which would reduce capex needs and debt market funding.