Hyperscaler Debt Flood Brings Derivatives Bonanza: Credit Weekly

As big tech companies raise hundreds of billions of dollars to fund artificial intelligence investments, Wall Street banks are increasingly finding they have to trade more credit derivatives to keep doing business with the hyperscalers.

The surge in activity is creating an opportunity for hedge funds to profit from banks’ growing demand for these instruments.

Banks typically face limits on how much exposure they can have to a single company across loan portfolios and derivatives books. But so-called hyperscalers such as Meta Platforms Inc. and Alphabet Inc. are raising so much capital to fund their artificial-intelligence programs — they are ...