Big Tech companies like Microsoft (MSFT) and Meta (META) are funding billions in artificial intelligence (AI) spending with their hefty cash reserves, while others, like Oracle (ORCL) and OpenAI (OPAI.PVT), are financing their AI efforts with debt.

Yahoo Finance Markets and Data Editor Jared Blikre, who also hosts Yahoo Finance’s Stocks in Translation podcast, explains how credit default swaps (CDSs) offer insurance to protect investors if a company were to default.

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Wall Street is increasingly focused on a new question. How is the global AI tab actually going to be paid?

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For a while, the big hyperscalers have been funding the build out with tons of cash on hand, but reality and expec expectations, they are shifting now.

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More and more of that bill is likely to come from new debt. and Oracle is already there.

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It is borrowing to build AI data centers and the cost to ensure that debt has spiked.

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That insurance is called a credit default swap or CDS and that’s what we are breaking down on today’s stocks and translation.

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So let’s start by breaking down the CDS which you might remember from the global financial crisis.

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You can think of a credit default swap as a contract that protects an investor against a company not paying its debt.

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The buyer pays a yearly fee like an insurance premium. If the company stops making payments on its debt, files for bankruptcy or otherwise defaults, then the protection seller has to cover the agreed upon losses for the bond holder.

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To put it simply, it’s just insurance on a corporate IOU.

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Now, how does this work in practice? Say an investor owns a company’s bonds and wants protection.

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They go to a bank or a dealer and pay a fee each year to insure those bonds.

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If Oracle runs in a serious trouble or ultimately defaults, that CDS contract pays out and helps make the holder of that bond whole.

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And this is key. When that yearly fee jumps, it means ensuring Oracle’s debt just got riskier and more expensive in the eyes of the market.

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And that can be one of those canary in the coal mine signals.

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Now let’s take a look at how all of this is playing out across the big AI players.

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This chart shows the annual cost to ensure $10 million of five-year debt for Oracle, Meta, Amazon and Microsoft.

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Now, focus on for a second on that top line, which is Oracle.

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Since the summer, the price of protection has climbed sharply.

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Meanwhile, Meta, Amazon and Microsoft, the lines in the middle and lower part of the chart, they have been much calmer, but they’re also rising too.

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So credit investors are basically saying, we’re more worried about how Oracle is funding its AI push than we are about these other hyperscalers.

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But finding CDS data isn’t always cheap or easy.

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So let’s bring this back to something that you can actually see every day.

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Here in this next chart, we have Oracle’s stock price in blue and the price of its long-term bonds in white, both since the beginning of the year.

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Now, notice how they track each other pretty tightly and they tend to move in the same direction.

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And always remember that bond prices, which is what we’re showing, move in the opposite direction of bond’s yields, which is what we’re not showing.

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So when the stock climbed through the spring and the summer, the bond price was generally moving higher too, which means that the yield on that bond was going lower, indicating less stress.

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And when the stock rolled over and quickly dropped after the September peak, the bond price also fell. That means the yield surged higher and that indicates more stress.

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So even if you never look at a corporate bond or a CDS quote, a big persistent sell off in a company’s stock can be a sign that credit investors, they’re getting nervous too.

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So here’s what to watch out for from here. Oracle is less cash rich than the other hyperscalers, so that’s our Canary.

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So if you have access to Oracle’s bond and CDS prices, you can see how they track with Oracle’s stock price.

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And if you don’t have that market access, know that any large or long prolonged sell offs in Oracle’s stock is also a big warning in itself.

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Then, track how much new debt Oracle actually issues to fund AI data centers. That’ll show up in headlines and earnings calls.

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Next, see if debt and insurance costs start rising for other AI hyperscalers.

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And if you don’t have the data, you’ll see the big moves in headlines or just watch for the big drops in stock prices.

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And finally, watch those hyperscalar earnings reports, particularly on AI and cloud profits versus their interest costs.

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We want to know if all those new data centers are earning enough cash to comfortably cover the interest bill.

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Bottom line, Wall Street is honing in on the great AI build out tab and now that they’re paying attention, so can you.

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And turn tune in to the Stocks and Translation podcast for more jargon busting deep dives. New episodes can be found Tuesdays and Thursdays on Yahoo Finance’s website or wherever you find your podcast.