Musk's xAI start-up burns through $1.3b a month as costs pile up

Straits Times

6 hours ago

xAI, which is responsible for the AI-powered chatbot Grok, expects to burn through about US$13 billion (S$16.7 billion) in 2025. PHOTO: REUTERS
NEW YORK – Mr Elon Musk's artificial intelligence start-up xAI is burning through US$1 billion (S$1.3 billion) a month as the cost of building its advanced AI models races ahead of the limited revenues, according to people briefed on the company's financials.
The rate at which the company is bleeding cash provides a stark illustration of the unprecedented financial demands of the artificial intelligence industry, particularly at xAI, where revenues have been slow to materialise.
To cover the gap, Mr Musk's start-up is currently trying to raise US$9.3 billion in debt and equity, according to people briefed on the deal terms, who asked not to be identified because the information is private.
But even before the money is in the bank, the company has plans to spend more than half of it in just the next three months, the people said.
Over the course of 2025, xAI, which is responsible for the AI-powered chatbot Grok, expects to burn through about US$13 billion, as reflected in the company's levered cash flow, according to details shared with investors.
As a result, its prolific fundraising efforts are just barely keeping pace with expenses, the people added.
A spokesman for the company declined to comment. However, Mr Musk said 'Bloomberg is talking nonsense' in a response to a post on his social media platform X that referenced Bloomberg's article.
The losses are due, in part, to the huge costs that all AI companies face as they build the server farms and buy the specialised computer chips that are needed to train advanced AI models like Grok and ChatGPT.
Carlyle Group estimates that over US$1.8 trillion of capital will be deployed by 2030 to meet that demand to build out AI infrastructure, chief executive Harvey Schwartz wrote in a shareholder letter.
'Model builders will look to raise debt, and they're going to burn lots and lots of cash,' said Mr Jordan Chalfin, a senior analyst and head of technology at CreditSights. 'The space is very competitive, and they are battling for technical supremacy.'
The Musk brand
But Mr Musk's entrant in the AI race has struggled to develop revenue streams at the same rate as some of its direct competitors, like OpenAI and Anthropic.
While almost none of these companies offer public figures on their finances, Bloomberg has previously reported that OpenAI, the creator of ChatGPT, is expecting to bring in revenues of US$12.7 billion in 2025.
At xAI, revenues are expected to be just US$500 million in 2025, rising to north of US$2 billion in 2026, investors were recently told.
What xAI has on its side is a CEO, Mr Musk, who is the richest man in the world, and one who has shown a willingness to spend his fortune on huge, futuristic projects long before they start generating money.
Back in 2017, Mr Musk's biggest company, Tesla, was burning through US$1 billion a quarter to pay for the production of its Model 3 car, Bloomberg reported at the time.
SpaceX, meanwhile, sustained years of steady losses as it pushed toward its long-term goal of interplanetary exploration.
Even against this backdrop, though, the huge losses at xAI stand out.
Mr Musk's team at xAI, which is racing to develop AI that can compete with humans, believes that they have advantages that will eventually allow them to catch up with peers.
While some competitors rent chips and server space, xAI is paying for much of the infrastructure itself and getting direct access through X, which previously bought a significant stockpile of the most coveted and high powered computer chips.
Mr Musk has said that he expects xAI will continue buying more chips.
X factor
After recently merging with X, Mr Musk's AI executives are also hopeful that they will be able to train the company's models on the social media network's copious and constantly-refreshed archives, rather than paying for data sets like other AI companies.
These potential advantages have led xAI to optimistically project that it will be profitable by 2027, people familiar with the matter said.
OpenAI expects to be cashflow positive by 2029, Bloomberg previously reported.
These projections, along with Mr Musk's celebrity status and political power, have been enough to win over many investors, especially before the recent breakdown in the relationship between Mr Musk and President Donald Trump.
Potential xAI investors were told that the company's valuation grew to US$80 billion at the end of the first quarter, up from US$51 billion at the end of 2024. Investors have included Andreessen Horowitz, Sequoia Capital and VY Capital.
For now, though, xAI is racing to raise enough money to keep up with its prodigious expenditures.
Between its founding in 2023 and June 2025, xAI raised US$14 billion of equity, people briefed on the financials said.
Of that, just US$4 billion was left at the beginning of the first quarter, and the company expected to spend almost all of that remaining money in the second quarter, the people said.
The company is now finalising US$4.3 billion in new equity funding, and it already has plans to raise another US$6.4 billion of capital in 2026, the company has told investors.
And that is on top of the US$5 billion in debt that Bloomberg has previously reported Morgan Stanley is helping it raise.
The corporate debt is expected to help pay for xAI's data centre development, the people said. Other companies have decided to do project financing instead.
The company is also expecting to get a bit of help from a US$650 million rebate from one of its manufacturers, it told investors this week.
There were early signs that investors were hesitant to loan the company money at the proposed terms, Bloomberg has reported.
The company gave select investors more detailed financial information on June 16 in response to questions it had faced during the fundraising process, people familiar with the negotiations said.
But the deal has attracted more interest since the company changed some of the deal terms – to be more investor friendly – and finalised the equity fundraising. BLOOMBERG
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