- Elon Musk’s xAI raises $20 billion in funding with support from Nvidia and investors.
- Equity and debt structure allow investors to recover capital through leased GPUs.
- Funding uses SPV to acquire and lease Nvidia processors for Colossus 2.
Elon Musk's AI startup, xAI, is raising its funding round to $20 billion, receiving backing from investors such as Nvidia Corp, according to Bloomberg. xAI's funding comprises equity and debt via a special purpose vehicle (SPV) that will acquire Nvidia’s processors and lease them to xAI for its Colossus 2 initiative, which is the company’s largest data center located in Memphis.
The report states that Nvidia, under the leadership of CEO Jensen Huang, plans to invest almost $2 billion in the equity segment of the agreement. The action demonstrates the chipmaker’s wider approach to accelerate clients’ AI progress. xAI’s funding round, originally projected to be about half its current size, may still grow larger. It comprises approximately $7.5 billion in equity and as much as $12.5 billion in debt via the SPV.
Within the framework, the SPV will purchase Nvidia’s processors, which xAI will rent for five years. This structure enables Wall Street investors to recuperate their capital incrementally, with the loan being guaranteed by the GPUs instead of the company. The framework could serve as an example for other tech companies aiming to handle significant debt levels.
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Apollo Global Management and Diameter Capital Partners are involved in the debt segment of the financing, whereas Valor Capital is at the forefront of the equity round. Apollo is investing directly in xAI as well. The agreement signifies another achievement in a year characterized by substantial AI infrastructure investment.
Prominent tech firms have invested tens of billions of dollars in expanding data centers and chip production initiatives. Earlier this week, OpenAI finalized a long-term deal to utilize chips from Advanced Micro Devices (AMD), while Meta Platforms Inc. obtained a $29 billion funding arrangement for data centers. At the same time, Oracle Corp. secured $38 billion in debt to enhance its cloud and AI initiatives.