Investors Turn to Derivatives as AI Spending Faces Scrutiny

Investors are using options and credit derivatives to reduce exposure to a downturn in artificial intelligence (AI) stocks and infrastructure investments. New contracts tied to computing are designed to hedge declines in rental rates for AI computing capacity.

The hedging activity comes amid questions about whether future earnings can justify AI valuations, planned spending and borrowing. More expensive protection could raise financing costs for infrastructure projects, while contracts covering falling chip rental prices may make lenders more willing to provide funding.

Those effects put the cost of protection alongside the potential effect on lenders’ willingness to finance AI infrastructure. Oaktree Capital co-founder Howard Marks’ mixed assessment of AI bubble risks came amid market declines, above-forecast U.S. inflation readings and debt concerns at infrastructure firms.