Key Takeaways
- Boaz Weinstein’s Saba Capital Management is selling credit derivatives on major tech companies, including Microsoft, Oracle, Meta, and Alphabet.
- Banks and other lenders are buying this protection to hedge their exposure to the massive debt these firms are accumulating to fund AI development.
- The move signals growing concern among financial institutions about a potential AI bubble and the risks associated with the industry’s investment frenzy.
- While the perceived risk is rising, the cost of this credit insurance remains relatively low compared to other sectors.
Boaz Weinstein’s hedge fund, Saba Capital Management, is making a significant move that signals rising unease over the AI boom. The firm has begun selling credit derivatives to banks seeking protection against the mounting debt of Big Tech giants like Microsoft, Oracle, Meta, Amazon, and Alphabet, according to a source with direct knowledge of the matter.
Banks Seek Shelter from AI Investment Storm
The tech industry’s race for AI dominance is being fueled by billions of dollars in borrowed capital. In recent months, Meta raised $30 billion, and Oracle secured $18 billion to fund their ambitious AI projects. This debt-fueled expansion has made some lenders nervous.
To protect themselves from potential losses if the AI boom falters, banks are buying credit default swaps (CDS) from Saba Capital. A CDS acts like an insurance policy; its value increases as the perceived risk of a company defaulting on its debt grows. This is the first time Saba has offered this type of protection on some of these tech names, highlighting a new demand for hedging against the sector.
A Market on Edge
The move underscores a growing anxiety that the current AI enthusiasm could be a bubble. While these tech giants are considered financially robust, the sheer scale of their borrowing has caught Wall Street’s attention.
Data reflects this shifting sentiment. Credit default swap spreads for Oracle and Alphabet have climbed to their highest levels in two years. Although the current risk levels are still below those of investment-grade firms in other industries, the upward trend is a clear indicator of market concern.
The development is not happening in a vacuum. Bank of America’s chief investment strategist, Michael Hartnett, recently identified “AI hyperscaler corporate bonds” as a top “short” opportunity, suggesting that betting against these companies’ debt could be profitable.
Saba’s strategy allows banks to offload some of their risk, while Weinstein’s firm profits from selling the insurance. It’s a calculated bet that taps into the financial sector’s quiet scramble to prepare for a potential correction in the high-flying AI market.
Image Referance: https://www.reuters.com/business/finance/weinsteins-saba-sells-credit-derivatives-big-tech-as-ai-risks-grow-source-says-2025-11-17/