Tesla's (TSLA, Financial) CEO Elon Musk is looking to raise $12 billion to boost his AI startup, xAI, which aims to acquire more NVIDIA (NVDA) chips and build a new data center. Collaborating with Valor Equity Partners, xAI plans to source funding from private credit markets to purchase high-end AI chips, which will be leased to xAI to support its new Colossus 2 data center project.
xAI previously raised $10 billion, but projections show cash outflows reaching $13 billion by 2025, as the company has yet to see significant revenue or profit. To sustain its rapid growth, xAI received a $2 billion infusion from SpaceX and secured $5 billion in corporate debt using its Grok language model's IP as collateral.
The financing strategy involves Valor purchasing NVIDIA chips to lease to xAI, easing initial financial pressure but imposing future leasing obligations. The first data center in Memphis completed quickly, currently housing 200,000 NVIDIA GPUs, with ambitions to reach one million to support Grok chatbot operations.
Negotiations with credit funds are ongoing, focusing on loan terms as lenders require rapid returns given AI chip depreciation risks. Existing xAI bonds yield 12.5%, with assets as collateral. Despite limited current revenue, Musk's past successes bolster investor confidence in xAI's long-term potential.
