XAI Madison Equity Premium Income Fund - CE with IsEquityFund

xAI, valued at $250 billion prior to its acquisition by SpaceX, generated $3.2 billion in revenue in 2025 despite an operating loss of $6.4 billion. The company is positioned within a competitive landscape where it faces threats from cheaper Chinese alternatives but remains a key player among the top AI labs. The significant investment commitments, including $15 billion per year to xAI for compute capacity, reflect confidence in its long-term potential despite current losses. The overall valuation of the AI sector, including xAI, is seen as ignoring steep losses, suggesting a potential for future growth as the market matures.

xAI is strategically positioned in the AI sector by utilizing a massive fleet of mobile and stationary natural gas turbines to power its data centers. This innovative approach allows xAI to bypass traditional permitting and construction timelines, ensuring it meets the enormous power demands of its AI clusters. The increasing energy demand driven by AI investment and data centers further solidifies xAI's competitive advantage in the market, making it a compelling investment opportunity.

We’ve previously written on our investment in the xAI corporate debt, backed by the colossus data centers Colossus I & II, the Grok LLM, and some GPUs. We like the debt for its 12.5% coupon. To lower its cost of capital, xAI found a party willing to take GPU residual risk. That wasn’t for us. But this is America, which means they then tranched the investment, with a senior layer that amortizes over the life of the GPU lease while retaining a first claim to the chips. We make 10% at the top which we think is good risk.

X.AI Holdings Corp. (xAI) is developing an AI model 'to understand the true nature of the universe.' In a short period since its inception, xAI launched its AI model and product, including the third version of the model, Grok 3, which demonstrated top scores in evaluation tests, ahead of other industry-leading AI models. The company also opened the Colossus data center, operating more than 100,000 Graphical Processing Units and considered at the time to be the largest coherent training center in the world. Most recently, xAI acquired X, formerly Twitter, which is expected to improve alignment of corporate objectives and enhance resource allocation.