Nvidia Backs Elon Musk’s xAI with $2 Billion Investment in $20 Billion Deal

TLDR

• xAI is raising $20 billion in a funding round that includes both equity and debt, double the amount initially reported
• Nvidia is investing up to $2 billion in equity and will finance the purchase of its processors through a special purpose vehicle
• The deal splits into approximately $7.5 billion in equity and $12.5 billion in debt, with xAI renting the Nvidia chips for five years
• Apollo Global Management and Diameter Capital Partners are participating in the debt portion, while Valor Capital leads the equity side
• xAI has been spending about $1 billion per month and previously raised $10 billion earlier this year

Elon Musk’s artificial intelligence startup xAI is raising $20 billion in its latest funding round, according to people familiar with the deal. The amount is double what was initially reported for this financing effort.

The funding includes both equity and debt arranged through a special purpose vehicle. This structure will be used to purchase Nvidia processors for xAI’s Colossus 2 data center in Memphis.

Nvidia’s Strategic Investment Role

Nvidia is contributing up to $2 billion in the equity portion of the transaction. The chipmaker’s investment strategy helps accelerate AI development among its customers.

The total financing breaks down to approximately $7.5 billion in equity and up to $12.5 billion in debt. XAI will rent the Nvidia processors for five years, allowing investors to recoup their money over that period.

The deal structure is backed by the graphics processing units themselves rather than the company. This approach could serve as a model for other tech firms looking to reduce debt exposure.

Apollo Global Management and Diameter Capital Partners are joining the debt raise. Valor Capital is leading the equity portion, with Apollo also investing in that segment.

Nvidia declined to comment on the deal. XAI did not respond to requests for comment.

In September, Musk posted on X that the company was not raising capital at that time. He later clarified that xAI would raise funds in the coming months.

High Burn Rate Drives Capital Needs

XAI has been spending approximately $1 billion per month, according to previous reports. The company already raised about $10 billion in corporate equity and debt earlier this year.

Musk has tapped his other companies for xAI investment, including SpaceX. Tesla investors will vote later this year on whether the electric carmaker should invest in xAI.

Data center capacity is viewed as essential for developing advanced AI models. Tech companies have raised about $157 billion in US bond markets this year, up 70% from last year.

Nvidia CFO Colette Kress told a Goldman Sachs conference in September that the company prioritizes using cash to help other companies deploy AI faster. The chipmaker will also pursue stock buybacks and strategic acquisitions.

OpenAI announced a deal earlier this week to use AMD chips over multiple years. Meta Platforms has secured several multibillion-dollar deals recently, including a $29 billion financing package for data centers.

Oracle raised a $38 billion debt package for its infrastructure. Musk launched xAI in July 2023 as an alternative to OpenAI’s ChatGPT.

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