Nvidia to invest in Musk’s xAI as part of US$20 billion funding

[NEW YORK] The Elon Musk-backed artificial intelligence (AI) startup xAI is raising more financing than initially planned, including an equity investment from Nvidia, to bring its ongoing funding round to US$20 billion, according to sources with knowledge of the matter.

The financing, which includes equity and debt, will be tied to the Nvidia graphics processing units (GPUs) that xAI plans to use in Colossus 2, said the sources, who asked not to be identified because the information is private. That’s the name of its largest data centre site, which is located in Memphis.

Nvidia is investing as much as US$2 billion in the equity portion of the deal, the sources said, a strategy by the chipmaker that helps accelerate its customers’ AI investments. XAI’s fundraising effort, previously reported by Bloomberg at half the amount, may continue to grow.

A representative for Nvidia declined to comment. A spokesperson for xAI did not respond to a request for comment. Musk posted on X in September that the company was “not raising any capital right now”.

The massive capital raise is just the latest for the AI industry, which has seen major tech companies invest tens of billions at a frenetic pace in order to build the infrastructure necessary to develop top AI models.

Earlier this week, OpenAI announced a deal to use Advanced Micro Devices chips over multiple years. Meta Platforms has inked several multibillion-dollar deals in the past few months, including a US$29 billion financing package for data centres. Oracle also raised a US$38 billion debt package for its infrastructure.

XAI’s financing would be split between about US$7.5 billion of equity and as much as US$12.5 billion of debt, the sources said, and structured via a special purpose vehicle (SPV). The SPV will be used to buy Nvidia processors, and Musk’s AI startup would then rent the chips out for five years, allowing Wall Street financiers to recoup their investment.

The unique deal structure, with the debt backed by the GPUs as opposed to the company, could provide a playbook for tech firms looking to decrease debt exposure.

Nvidia’s leaders have said that they will use the company’s growing financial strength to speed up the deployment of AI across the industry. In September, chief financial officer Colette Kress told the audience at a Goldman Sachs conference that Nvidia will repurchase stock and do strategic acquisitions where possible, but the priority is on using cash to help other companies use AI more quickly.

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Apollo Global Management is participating in the debt raise, as is Diameter Capital Partners, the sources said. Valor Capital is leading the equity portion of the deal, Bloomberg previously reported. Apollo is also investing.

A Diameter spokesperson declined to comment, while representatives for Apollo and Valor did not respond to requests for comment.

Data centre capacity is seen as a necessity for developing top AI models, though some have debated how much computing power can improve the technology. In the US bond markets alone, tech companies have raised about US$157 billion this year, up 70 per cent from last year.

Musk’s xAI is especially eager for capital. The firm, which already raised about US$10 billion of corporate equity and debt earlier this year, still needs billions more, given the company has been burning through US$1 billion per month, Bloomberg reported.

Musk has also tapped his empire of companies, including SpaceX, for investment into xAI. Later this year, Tesla investors will vote on whether the electric carmaker should invest in xAI as well.

Musk has framed AI as the foundation for many of his futuristic products, including self-driving cars and fully autonomous robots. BLOOMBERG