According to the Wall Street Journal, Elon Musk is mobilizing all available financial resources to stay competitive in the AI arms race. Just weeks after Musk's xAI raised $10 billion in equity and debt financing, xAI is working with a trusted financier to raise as much as an additional $12 billion for its ambitious expansion plans, people familiar with the matter said.
Musk
Valor Equity Partners is an investment firm whose founder Antonio Gracias has close ties to Musk. The company is currently negotiating financing with lenders, and the funds raised will be used to purchase large quantities of advanced Nvidia chips. These chips will be leased to xAI to build a large data center to help train and drive the AI chatbot Grok.
Musk needs as much financial support as possible to have the strength to launch a fierce and expensive AI competition with well-funded competitors such as Google, Microsoft and Meta. Grok is nowhere near as popular as OpenAI’s ChatGPT. Earlier this month, Grok publicly apologized for his "horrible behavior" after his reputation was damaged after he posted racially offensive and controversial comments on X.
Valor founder Gracias helps Musk raise capital
Given the huge amount of money required to train large AI models, xA may need further financing in the coming months. Unlike competitors such as OpenAI and Anthropic, Musk's company has not partnered with existing cloud computing giants, which could have shared some of the costs of training and running large language models. Currently, xAI is building and operating its own AI infrastructure at its own expense.
$13 billion burned in a year
xAI’s funds were spent almost as quickly as they were received. xAI expects to burn through about $13 billion in cash in 2025, according to forecasts it shared with potential creditors months ago, people familiar with the matter said. xAI is currently not profitable and its revenue is extremely limited.
xAI has stated that it hopes to have 1 million chips to drive Grok. To pay for the construction of a second, larger data center, Colossus 2, xAI is looking to Valor for help. Valor's funds have invested in SpaceX, Tesla, SolarCity, The Boring Company and Neuralink, all of which are Musk's companies.
Valor and other private equity investors will pour their own money into a financing vehicle that will borrow billions from private credit funds to buy the chips needed for xAI's expansion. Funds to repay the interest and principal on this asset-backed debt will come from the fees xAI pays to use the new chips. If funds are insufficient, the lender can repossess the chips.
Valor is in talks with a group of funds and hopes to finalize a deal in the coming weeks, but it could still fall through, people familiar with the matter said. Key points of contention in the deal are how large the loan should be and how quickly the repayment period should be. Some lenders want the debt to be repaid within three years and cap the amount they can borrow to limit their risk. AI chips depreciate quickly as new, more powerful versions are constantly developed. Moreover, data center demand may also decline, or xAI may suffer for other reasons.
The $5 billion in debt financing xAI has closed in recent weeks includes bonds and loans secured by data centers, company-owned Nvidia chips and Grok code. The bonds have yields as high as 12.5%. If xAI defaults, lenders can lease Colossus to other AI companies and have the right to dispose of a cutting-edge AI model that has been integrated into Musk's other businesses.
This debt financing of xAI limits its future corporate borrowing capacity to only $5 billion in additional borrowings, excluding funds raised through chip leasing.