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Investing.com -- Boaz Weinstein’s Saba Capital Management has been selling credit derivatives to lenders seeking protection on major technology companies amid concerns over debt-financed AI investments.
Banks have been buying credit default swaps (CDS) from the U.S. hedge fund to protect against potential losses on tech companies taking on debt for artificial intelligence projects, according to a report from Reuters, citing source with direct knowledge of the transactions.
The hedge fund has sold CDSs on Oracle, Microsoft, Meta, Amazon and Google parent Alphabet, marking the first time Saba has provided such hedging protection on some of these companies. It’s also reportedly the first time banks have requested this type of trade from the fund.
Some large asset managers, including a private credit fund, have also shown interest in purchasing these credit derivatives.
The development highlights growing concerns about the increasing debt burdens of technology companies investing heavily in AI. Financial institutions appear to be preparing for potential fallout if the current AI enthusiasm proves to be a bubble, which could trigger broader market corrections.
Despite these precautionary measures, current CDS prices suggest the perceived default risks for these tech companies remain relatively low compared to other sectors.
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