"The 'London Whale' killer strikes again! The AI bubble theory is causing a stir, with reports of the Saba fund selling CDS on giants such as Oracle and Microsoft."

Insiders say that Boaz Weinstein's Saba Capital Management has been selling credit derivatives against large tech companies such as Oracle Corporation (ORCL.US) and Microsoft Corporation (MSFT.US) to banks in recent months, primarily due to concerns about the risk posed by the debt financing frenzy in the AI investment trend. The source mentions that banks are seeking to hedge potential losses by purchasing credit default swaps (CDS) from this American hedge fund management company. Saba Fund is known for its successful bets against the trader at JPMorgan Chase known as the "London Whale." The "London Whale" incident refers to a JPMorgan Chase trader in 2012 who caused the bank to incur losses of over $6 billion by taking massive positions. Saba Fund (and its manager Boaz Weinstein) played the role of the counterparty, identifying the risks involved, placing bets with CDSs, and ultimately profiting from it. Although the value of credit insurance increases with market expectations of the default risk of companies, the current prices suggest that the default risk of these tech companies is still relatively low compared to other industries. The source with direct knowledge of the transactions stated that Saba has sold CDS against Oracle Corporation, Microsoft Corporation, Meta, Amazon.com, Inc., and the parent company of Alphabet Inc. Class C, Alphabet, to banks. The source also mentioned that some large asset management companies, including a private credit fund, are also interested in purchasing this product. Microsoft Corporation and Oracle Corporation declined to comment. Meta, Alphabet Inc. Class C, and Amazon.com, Inc. did not immediately respond to requests for comments. Tech companies' debt rising, banks seeking protection This development highlights the current market's eagerness to hedge against the risk of inflated valuations of AI companies and increasing debt burdens. It also points to concerns that if the current AI frenzy is proven to be a bubble, it could lead to a significant stock market correction and ultimately impact the economy. The source mentioned that this is the first time Saba has sold hedging protection against some specific companies and the first time banks have requested such transactions from this hedge fund. The source stated that these Financial Institutions, Inc. are seeking protection to address the accumulating debts on their balance sheets as they are borrowing heavily to fund their billion-dollar AI projects. A client report released by Goldman Sachs Group, Inc. on Friday showed an increase in customer demand for hedging protection in the stock derivative trading industry. Jim Reid of Deutsche Bank Aktiengesellschaft commented on the tech-related CDS market on Monday, saying, "Part of this is due to concerns over the AI company bond supply in the next few quarters, which has seen a surprising surge in recent weeks." "However, these CDSs also appear to be used as general hedging tools against various AI long positions." Concerns about bubbles exist, but risks are still lower than other industries Although the ultimate purpose of CDS is to provide compensation in the event of a company's bankruptcy, the value of these derivatives themselves will increase as the economic health of the companies deteriorates. The CDS prices for Oracle Corporation and Alphabet are currently at their highest levels in two years, and according to S&P Global, Inc.'s data, the prices of Meta and Microsoft Corporation's CDS contracts have risen significantly in recent weeks. According to S&P's data, Meta's CDS data has only been recorded since late October. Despite the significant increase in the prices of CDS contracts for large tech companies, analysts point out that the current levels are still lower than some investment-grade companies in other industries. According to S&P's data, last week, the five-year CDS spread for Oracle Corporation exceeded 105 basis points, while the CDS spreads for Alphabet and Amazon.com, Inc. traded around 38 basis points, and Microsoft Corporation traded around 34 basis points. The borrowing of mega-cap companies (essentially large AI tech companies) has surged in recent weeks. Meta raised $30 billion in debt last month. Oracle Corporation raised $18 billion in September. Alphabet Inc. Class C parent company, Alphabet, also entered the market for financing. Data from Bank of America Corp shows that in September and October alone, the issuance of investment-grade bonds in this industry has exceeded twice the annual average. However, French Industrial Bank pointed out on Tuesday that the yield spread on the bonds of these companies is still lower than the overall investment-grade credit level, while other institutions like Citigroup emphasized the healthy balance sheets of mega-cap companies. Michael Hartnett, Chief Investment Strategist at Bank of America Corp, said in Friday's weekly "Fund Flows" report, "The best shorts are AI mega-cap company bonds."