Elon Musk’s artificial intelligence startup, xAI, is reportedly in the process of raising $20 billion in a new financing round that includes a significant investment from Nvidia. The funding is larger than initially planned and is structured to secure the massive number of processors required to build out the company’s AI infrastructure.
According to people with knowledge of the matter, the financing includes both equity and debt in a special purpose vehicle (SPV). This SPV will be used to purchase Nvidia processors, which will then be rented to xAI for use in its Colossus 2 project, the company’s largest data center located in Memphis.
Details of the financing deal
The complex deal is reportedly structured as follows:
- Total amount: Up to $20 billion.
- Equity portion: Approximately $7.5 billion.
- Debt portion: As much as $12.5 billion in the SPV.
Nvidia is said to be investing as much as $2 billion in the equity portion of the deal, a strategic move by the chipmaker to help accelerate its customers’ AI investments. The debt portion, which is backed by the GPUs themselves rather than xAI’s corporate assets, is being participated in by firms including Apollo Global Management and Diameter Capital Partners. The equity portion is being led by Valor Capital.
This unique deal structure, where the hardware itself collateralizes the debt, could provide a model for other tech companies looking to finance large-scale infrastructure projects while minimizing their direct debt exposure.
A capital-intensive race for AI dominance
This massive financing effort is the latest example of the frenetic pace of investment in the AI industry. Major tech companies are spending tens of billions of dollars to build the infrastructure necessary to develop advanced AI models.
- Earlier this week, OpenAI announced a multi-year deal to use chips from AMD.
- Meta has recently secured a $29 billion financing package for its data centers.
- Oracle has raised a $38 billion debt package for its infrastructure.
Data center capacity is widely seen as a critical component for developing top-tier AI models.
xAI’s need for capital
Elon Musk’s xAI is particularly in need of significant capital. The company, which already raised about $10 billion earlier this year, has reportedly been burning through cash at a rate of $1 billion per month. Musk has also drawn investments from his other companies, including SpaceX. Tesla investors will soon vote on whether the electric car company should also invest in xAI.
Musk views AI as the foundational technology for many of his futuristic products, including self-driving cars and fully autonomous robots, making the success of xAI critical to his broader ambitions.
