Abstract:
Elon Musk’s SpaceX is seeking to raise $40 billion to buy Nvidia chips through a financing plan led by Apollo Global Management. The artificial intelligence and rocket group's relationship with the chip maker is deepening as it ramps up its bets on Nvidia's advanced technology.
This blockbuster debt financing transaction once again shows the huge scale of funds invested in chips and other infrastructure to support artificial intelligence.
According to people familiar with the matter, the company is seeking to raise about $10 billion in bank loans and $30 billion in investment-grade bonds to fund this huge chip order.
Private equity group Apollo is expected to lead the deal and help sell the debt to a broad group of investors, people familiar with the matter said. Bond investment group Pimco is one of a handful of lenders involved in talks to potentially fund the deal. The deal is expected to close in 2027.
SpaceX’s funding plan highlights the sheer scale of funding being raised to invest in data centers, chips and other infrastructure that underpins artificial intelligence.
Because SpaceX has a BBB credit rating, the second-lowest investment grade rating, insurance companies and pension funds will be able to buy its bonds. By comparison, such funds typically have a much more limited allocation to junk-rated bonds.
Apollo and Pimco declined to comment. SpaceX and Nvidia did not immediately respond to requests for comment.
This deal will further strengthen the relationship between SpaceX and Nvidia. Previously, Musk has promised to further increase investment in Nvidia technology in his artificial intelligence projects. At the same time, it would also be a victory for Nvidia as the company faces increasing competition from other chipmakers trying to challenge its dominance in advanced semiconductors.
Musk said on the SpaceX earnings call in August: "We have decided to build entirely on Nvidia because we think the Vera Rubin architecture is the best architecture." He was referring to Nvidia's most advanced artificial intelligence platform.
“We believe this is the best computer for artificial intelligence, and we value our close collaboration and partnership with NVIDIA on multiple levels.”
SpaceX received an investment-grade rating shortly after its $86 billion initial public offering in June. Less than two weeks later, the company issued another $25 billion in high-grade bonds. However, the bonds sold off in the following days as investors worried about its rising debt and high capital expenditures.
According to MarketAxess data, its bonds due in 2056 are currently trading at about 85 cents on the dollar, with a yield about 2.27 percentage points higher than U.S. Treasury bonds and similar to junk bond levels.
Musk's limited financial disclosures have made some investors wary of buying SpaceX debt in the past.
Investors previously approached by SpaceX to discuss financing its multibillion-dollar chip purchases said they received only a brief two-page deal memo, complete with images of space and an arrow marking the company’s plans to build data centers “somewhere in the universe.”
One of the people said: "How can we go to the investment committee with something like this?" The "investment committee" here refers to the internal investment committee responsible for approving transactions.
Apollo has made lending to high-grade companies a pillar of its $800 billion credit business and has led the completion of multi-billion-dollar financing transactions for groups such as Intel and Bayer. Its life insurance and annuity affiliate Athene typically buys a large portion of such issuances.
In June this year, Apollo also led a US$35 billion chip financing transaction to purchase processors produced by Nvidia competitor Broadcom. The transaction became the largest private credit transaction at the time.
In August this year, Nvidia announced that it was working with some of the largest institutions on Wall Street to build a $500 billion financing platform, and had signed memorandums of understanding with Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR.
The consortium aims to establish a third-party capital pool to provide financing for the purchase of Nvidia chips and the construction of broader artificial intelligence infrastructure, thereby helping its smaller customers reduce financing costs. Nvidia may provide support for up to 25% of the chip's value.
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