After the latest round of earnings reports, the combined market value of the four major U.S. cloud giants has declined by over $1 trillion, as investors worry about uncontrolled investment in AI infrastructure, cash flow pressure, and rising debt, which are simultaneously depressing stock prices and increasing demand for credit hedging.
Microsoft's stock price has fallen 27% from its recent peak, Amazon down 21%, Meta down 16%, and Alphabet down 11%. The core question in the market has shifted from &#34;Is AI worth it?&#34; to &#34;Can capital expenditures be sustained?&#34;, with concerns that rapid investment could lead to overcapacity and extended return cycles.
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This sentiment has also spilled over into the bond market. Debt investors are worried that tech giants are continuing to leverage up in the race for stronger AI capabilities, with bond credit spreads widening, while also driving up trading in single-name credit default swaps (CDS).
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According to Bloomberg, single-name CDS for issuers like Meta and Alphabet have been notably active over the past year, with Alphabet's CDS contracts currently totaling approximately $895 million and Meta's around $687 million.
Against the backdrop of continuously rising capital expenditure guidance, Goldman Sachs expects that the capital expenditures of large-scale cloud providers will total nearly $1.4 trillion from 2025 to 2027.
Morgan Stanley, on the other hand, predicts that large-scale cloud providers will borrow $400 billion this year, up from $165 billion in 2025. The &#34;trillion-dollar pullback&#34; on the equity side and the &#34;hedging frenzy&#34; on the credit side are jointly reassessing the pricing of &#34;big tech risks.&#34;
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<h2>Investors Accelerate Exit from Tech Stocks</h2>
The market value losses of the four major cloud giants—Amazon, Microsoft, Alphabet, and Meta—following the release of their latest quarterly earnings reports mark a significant turning point in market sentiment. Investors are reassessing whether the soaring AI expenditures of these companies will yield corresponding returns.
According to data from Goldman Sachs' Global Investment Research, the capital expenditures of the major cloud providers are expected to soar from a total of approximately $485 billion from 2022 to 2024 to nearly $1.4 trillion from 2025 to 2027.
Among them, Microsoft's capital expenditures are expected to jump from $76 billion in 2024 to $376 billion during 2025-2027, showing the most significant increase. Amazon Web Services is expected to spend $321 billion, Alphabet $304 billion, and Meta $279 billion.
Goldman Sachs analyst Shreeti Kapa pointed out that if this level is reached, the intensity of such spending will approach the 1.4% of GDP level seen at the peak of the internet bubble in the 1990s, which is rare in modern tech history.
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<h2>Rapid Expansion of the Credit Derivatives Market</h2>
Concerns among debt investors are driving the rapid development of the credit derivatives market. A year ago, many high-quality tech giants did not even have a single company credit default swap contract; today, these contracts have become one of the most actively traded products in the market.
According to Bloomberg, the trading activity of CDS for Meta and Alphabet has significantly increased recently. Excluding reverse trades, there are approximately $895 million in outstanding contracts related to Alphabet's debt, and about $687 million related to Meta's debt.
DTCC data shows that by the end of 2025, the number of dealers quoting CDS for Alphabet has increased from 1 in July last year to 6, while the number of dealers for Amazon's CDS has risen from 3 to 5.
London hedge fund Altana Wealth purchased debt default protection for Oracle last year, with a cost of about 50 basis points per year, meaning a $1 million exposure would require a payment of $5,000 annually. This cost has since risen to about 160 basis points.
Matt McQueen, head of corporate credit, securitized products, and municipal banking at Bank of America, stated that banks underwriting the debt of major cloud providers have become significant buyers of single-name CDS.
<blockquote>
&#34;The expected distribution period of three months may extend to 9 to 12 months, so banks may hedge some distribution risks in the CDS market.&#34;
</blockquote>
<h2>Cash Flow Pressure Drives Debt Financing</h2>
The fundamental reason why tech giants are forced to enter the bond market on a large scale is that their internal cash flow is insufficient to support the scale of their AI investments. It is estimated that if capital expenditures reach $700 billion by 2026, this figure will be almost equal to the total operating cash flow of ultra-large cloud vendors.
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Bank of America analysis shows that by 2026, only Microsoft's operating cash flow is expected to cover capital expenditures. Meta has hinted at a possible shift from &#34;net debt neutral&#34; to &#34;net positive debt.&#34; Even if stock buybacks are completely halted, the free cash flow of other companies will also be exhausted.
Bond issuance has reached record levels. Oracle issued $25 billion in bonds, attracting $129 billion in subscription orders. Alphabet followed suit, increasing its planned bond issuance from $15 billion to $20 billion, with subscription orders exceeding $100 billion.
Morgan Stanley statistics indicate that by the end of 2025, AI-related investment-grade debt will account for 14% of the U.S. IG market, becoming the largest single thematic sector in the market, surpassing the banking industry.
<h2>Market Divergence and Uncertain Outlook</h2>
Although current bond demand remains strong, there are divergences in the market. Some hedge funds view the demand for protection from banks and investors as a profit opportunity.
Andrew Weinberg, portfolio manager at Saba Capital Management, stated that since most tech giants still have low leverage, bond spreads are only slightly above the average level of corporate bond indices, and many hedge funds are willing to sell protection. He believes:
<blockquote>
&#34;If a tail risk scenario occurs, where will these credits go? In many cases, large companies with strong balance sheets and trillion-dollar market values will outperform the overall credit backdrop.&#34;
</blockquote>
However, other traders believe there is a mispricing of risk currently. Rory Sandilands, portfolio manager at Aegon, stated:
<blockquote>
&#34;The absolute scale of potential debt indicates that these companies' credit risk profiles may face certain pressures.&#34;
</blockquote>
Alexander Morris, CEO of F/m Investments, warned:
<blockquote>
&#34;The investment frenzy in the field of artificial intelligence has indeed attracted many buyers, but the upside is limited, and the margin for error is minimal. No asset class is immune to depreciation.&#34;
</blockquote>
Goldman Sachs analysis points out that to maintain the return rates that investors are accustomed to, these companies need to achieve profits exceeding $1 trillion annually, while the current market consensus for profits in 2026 is only estimated at $450 billion.
The final outcome will depend on whether AI investments can replicate the profit trajectory of cloud computing—Amazon AWS achieved breakeven within three years and reached a 30% operating profit margin within ten years. Before the results of this gamble are determined, the bond market's reaction may provide an early answer

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AI investment is out of control, debt is rising, and the investment return cycle is unclear. The market value of the four major cloud vendors has evaporated by trillions after earnings, shifting the market focus to "whether financial strength can hold up." Goldman Sachs predicts that capital expenditures for super-large cloud vendors will approach $1.4 trillion over the next three years, with cash flow emergencies triggering a surge in debt, leading to increased CDS trading. Currently, the CDS contract size for Alphabet is approximately $895 million, while for Meta it is about $687 million

- Following the recent earnings reports, the four major cloud service providers in the U.S. have collectively lost over $1 trillion in market value, driven by investor concerns regarding AI infrastructure spending and rising debt.  
- Notably, Microsoft's stock fell by 27%, while Amazon, Meta, and Alphabet saw declines of 21%, 16%, and 11%, respectively, as the market shifts its focus from AI viability to capital expenditure sustainability.  
- Goldman Sachs and Morgan Stanley project that capital expenditures for these cloud firms will significantly increase, raising concerns about cash flow and leading to a surge in credit derivatives trading due to perceived risks.

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After the earnings report, the market value of the four major cloud providers in the U.S. evaporated by $1 trillion, and the market is even seeking to hedge against "big company risks."