This week in charts
Cash levels at record lows
U.S. effective corporate tax rate declines
Estimated data center electrical consumption by U.S. state
Capex of major infrastructure projects – % of U.S. GDP
Reading for leisure in the U.S. declines
U.S. mortgage interest rates
Drug approval and research & development spend
Consumption expectations – 2023 vs. 2050
Historical price-to-earnings multiples by region
Value outperforming in Europe; Growth outperforming in the U.S.
Market performance
Cyclicals vs. defensives, by region
50 years of historical weights – Technology and U.S.
Investors seek protection from risk of AI debt bust
Trading in products that pay out when companies default is soaring as investors hunt for ways to protect their portfolios against the risk that the artificial intelligence boom turns into a bust.
Volumes in so-called credit default swaps tied to a handful of US tech groups have climbed 90 per cent since early September, according to data from clearinghouse DTCC.
The expanding use of these strategies underscores how some investors are growing uneasy about a rush of bond deals by tech companies to finance AI infrastructure, which could take years to generate returns.
The rush to hedge against potential defaults comes as Wall Street’s tech sell-off was reignited last week by earnings from software group Oracle and chipmaker Broadcom that had fallen short of investors’ lofty expectations.
The debt and equity of companies linked to the tech boom have whipsawed in recent months as traders scrutinised earnings reports and debated how competing AI products from companies such as OpenAI, Google and Anthropic would affect demand for chips and data centres.
The uptick in CDS trading has been particularly pronounced for Oracle and cloud computing company CoreWeave, both of which are raising billions of dollars in debt to secure data centre capacity.
A new market for Meta CDS sprang up after the company sold $30bn of bonds to finance AI projects in October.
CDS are used for default protection but also to hedge against or bet on swings in bond prices.
Appetite for CDS for highly rated US companies was thin to non-existent at the start of the year, when tech groups were primarily funding their AI spending through their hefty cash piles and strong earnings.
The market warmed up once those companies began to tap debt markets to cover their mounting costs. Meta, Amazon, Alphabet and Oracle raised a combined $88bn this autumn to fund AI projects, with JPMorgan predicting that investment-grade companies are on track to raise $1.5tn by 2030.
For Oracle, which has a lower credit rating than some of its investment-grade peers, CDS weekly trading volumes have more than tripled this year. The cost of buying the derivatives has risen to its highest level since 2009.
Oracle’s shares and bonds suffered a deep sell-off this week after it missed analysts’ estimates for revenue in the third quarter. They fell further on Friday after it delayed construction of at least one data centre.
This week’s fun find
Why singing is surprisingly good for your health
It's that time of year when the air starts to tinkle with angelic voices – or ring with the occasional lusty hymn – as carol singers spread their own indomitable brand of festive joy. All that harking and heralding. It's joyful and triumphant.
But these bands of tinsel-draped singers may be on to something. Whether they realise it or not as they fill shopping centres, train stations, nursing homes and the street outside your front door with jubilant song, they are also giving their own health a boost.
From the brain to the heart, singing has been found to bring a wide range of benefits to those who do it, particularly if they do it in groups. It can draw people closer together, prime our bodies to fight off disease and even suppress pain. So might it be worth raising your own voice in good cheer?
