Investing.com - Investors are buying credit default swaps to protect portfolios against potential losses from AI-related debt, driving trading volumes higher for the derivatives that gained prominence during the global financial crisis. More than $9 billion worth of CDS linked to bonds issued by Oracle (NYSE: ORCL), SpaceX, Alphabet (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), Meta (NASDAQ: META), Broadcom (NASDAQ: AVGO) and Nvidia (NASDAQ: NVDA) was traded on average each week in September, up from less than $2 billion in July, according to Morgan Stanley Research. US corporate CDS index trading volumes so far this year have overtaken last year's total, according to Bloomberg data.

AI-linked debt issuance has reached an estimated $466 billion so far in 2026, up from $101 billion in the same period in 2025, according to Morgan Stanley, to fund infrastructure such as data centers and chips. The cost of buying CDS on many AI-linked companies has hit record highs this month, climbing for companies such as AI cloud-computing provider CoreWeave and Microsoft (NASDAQ: MSFT). Five-year Meta CDS climbed to 108 basis points this month, meaning it costs $108,000 a year to insure $10 million of debt against default, while derivatives tied to Nvidia climbed to 101 basis points, both record highs.

Multi-asset and equity managers are using the swaps as a cost-effective way to hedge their AI exposure, helping to push prices to record highs. The interdependent nature of the AI sector's finances has prompted investors to trade CDS on companies that supply computing infrastructure to OpenAI and Anthropic such as Oracle and Alphabet. Oracle's CDS was quoted at 322 basis points on Monday, up from 144 basis points at the start of the year.

CDS on Elon Musk's SpaceX traded at a record 226 basis points at the start of the week, up from 110 basis points when it first began trading in late June. The price of protection against default at Alphabet and Amazon is also at all-time peaks. "CDS has become a key bellwether of investor sentiment towards hyperscaler funding and the broader AI trade," said Manish Kabra, head of US equity strategy at Société Générale.

The five-year CDS tied to CoreWeave's debt is trading at about 1,090 basis points, with demand so high that a purchaser of $10 million of protection would need to pay $1.82 million upfront, with additional quarterly payments of $125,000. Robert Dafforn, chief investment officer of London-based distressed debt specialist Polus Capital, pointed to "very highly levered" borrowing in the sector. "You know there is going to be a lot of misallocation" of capital, Dafforn said.