Apollo Global Warns HyperScale AI Debt Stress, Compares to 2008 Housing Collapse

Apollo Global Management warned on Wednesday that credit default swaps (CDS) for hyper-scale debt are reflecting greater risk, with chief economist Torsten Slok explaining the shift stems from weakened credit fundamentals rather than routine hedging by bond dealers.

Hyper-scale companies—Amazon, Microsoft, Google, Meta—operate the cloud infrastructure underpinning AI boom. Their CDS spreads have widened to around 60 basis points against bank debt since October 2025, according to Slok’s memo.

Slok cited a CNBC report referencing Westwood Capital founding partner Dan Alpert, who compared the situation to pre-2008 mortgage crisis conditions. Alpert noted banks have built stronger capital buffers and are more diversified than before, though analysts say this parallel evokes the film 'The Big Short,' which highlighted mortgage bond mispricing ahead of the 2008 crash.

Slok’s memo followed weekend requests by major AI labs to slow model development over safety concerns, potentially dampening computing demand from hyper-scale firms. Separately, analysts noted similar warning signals in private credit markets, also likened to pre-2008 conditions.

While AI debt-driven investments lifted yields to multi-year highs earlier this year, not all agree risks are materializing. Freedom Capital Markets’ technology research head Paul Mix said hyper-scale earnings have already softened. Dean Baker of Center for Economic and Policy Research noted CDS investors are betting against AI firms' ability to support their debt with future performance.

Alphabet and Meta each face negative free cash flow of approximately $25 billion, while Amazon’s stands at around $30 billion—per Slok’s memo citing FactSet. Microsoft remains the only major player with positive cash flow.