Billionaire Elon Musk's xAI gets another $20 billion injection

Nvidia led a series of investors pouring $20 billion into Mr. Musk's AI start-up, double the initial expectation.

xAI, billionaire Elon Musk's AI start-up, is about to earn at least 20 billion USD - Photo: AFP

According to Bloomberg News on October 7, billionaire Elon Musk's artificial intelligence start-up xAI is about to successfully raise 20 billion USD in capital, double the original plan.

The funding xAI is set to receive will be split between about $7.5 billion in equity and up to $12.5 billion in debt, of which Nvidia is expected to invest up to $2 billion in equity. The rest will come from other institutional investors.

Even the final amount xAI raises could still increase. Bloomberg previously claimed the fundraising effort could only bring in more than $10 billion.

The $20 billion will be invested in a special purpose vehicle (SPV) to purchase a large number of Nvidia GPUs. These GPUs will be leased by xAI for 5 years to be installed at the Colossus 2 project - the company's largest data center located in Memphis, Tennessee.

This way investors will be able to recover their capital and profits, while xAI will also reduce debt risks.

This unique deal structure, where capital is poured directly into the GPU rather than given to the company, is expected to set a template for similar investments in tech companies in the future.

The xAI deal is just the latest in a series of multi-billion dollar deals to build AI development infrastructure in recent times.

Earlier this week, OpenAI announced a deal to use GPU chips from AMD for several years. The revenue that AMD receives from this deal could reach tens of billions of dollars.

Meta Platforms (Facebook’s parent company) has also signed several billion-dollar deals, including a $29 billion data center financing package, in the past few months, while Oracle has raised $38 billion in debt to invest in infrastructure.

Nvidia, which has an 80-95% market share of GPUs for AI development and data centers, has also announced that it will use its growing financial resources to accelerate the development of the entire AI industry.

Last September, the company's chief financial officer (CFO), Colette Kress, affirmed that Nvidia's priority is to use the cash to help other companies apply AI faster.

However, these efforts also raise concerns about an increasingly inflated "AI bubble" where hundreds of billions of dollars are poured in but it will take several years to make a profit.

Most companies are still burning through cash. xAI alone is burning through $1 billion a month. Industry leader OpenAI is burning through cash just as fast and is expected to turn a profit only in the last year of the decade.

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Source: https://tuoitre.vn/xai-cua-ti-phu-elon-musk-duoc-bom-them-20-ti-usd-20251008100205305.htm