Apollo Economist Warns Tech Giants' AI Debt Spending Lifts Hyperscaler Credit Risk
Apollo's chief economist warned that technology giants' debt-funded investment in AI infrastructure is raising credit risk for hyperscale cloud providers. Since October 2025, the spread between hyperscaler credit default swaps and bank CDS has widened from near zero to about 60 basis points, while bank CDS spreads have held near 40 basis points. Google's forward debt-to-equity ratio is 13% with negative free cash flow of USD 25.7 billion; Amazon's is 23% with negative USD 30 billion; Meta's is 34% with negative USD 25.7 billion; Microsoft's is 7.34% with positive USD 33.4 billion.
Since October 2025, the spread between credit default swaps (CDS) on hyperscale cloud providers and bank CDS has widened from close to zero to about 60 basis points. Over the same period, bank CDS spreads have remained near 40 basis points, barely moving. Prices for hyperscaler CDS contracts have continued to climb, with investors paying more to insure against the risk of default on related bonds. Since the end of June 2026, hyperscaler equities have remained decoupled from their credit risk trend.
Financial data for major hyperscalers show that Google has a forward debt-to-equity ratio of 13% and forward free cash flow of negative USD 25.7 billion; Amazon has a debt-to-equity ratio of 23% and free cash flow of negative USD 30 billion; Meta has a debt-to-equity ratio of 34% and free cash flow of negative USD 25.7 billion; Microsoft has a debt-to-equity ratio of 7.34% and free cash flow of positive USD 33.4 billion. Among these companies, Microsoft's free cash flow is positive.
Several frontier large language model companies have recently said that, for safety reasons, they want to slow the pace of product iteration. These models are hosted and operated by cloud service providers.