Elon Musk's xAI seeks $12 billion more to expand AI infrastructure

Business Standard

22-07-2025

Elon Musk is tapping every possible funding source to keep up in the intense artificial intelligence race.
Just weeks after his AI company, xAI, secured $10 billion by selling shares and taking on debt, the firm is now aiming to raise as much as $12 billion more. The new funding is being arranged with the help of a long-time ally, according to a report by The Wall Street Journal.
Valor Equity Partners, an investment firm founded by Antonio Gracias - known for his close relationship with Musk - is allegedly in talks with lenders to arrange the fresh capital. The money is expected to be used to buy a huge stockpile of Nvidia's advanced chips. These chips would then be leased to xAI for building a large-scale data centre, which would support the training of its AI chatbot, Grok.
To compete with tech giants like Google, Microsoft and Meta, Musk is trying to gather as many financial resources as possible. Grok has not seen the same popularity as OpenAI's ChatGPT and recently faced backlash for sharing offensive and racist content on X. The company later apologised for the 'horrific behaviour'.
Talks still underway
One of the key sticking points is the size of the loan and the repayment timeline. Some lenders are pushing for repayment within three years and want to limit the total borrowed amount to reduce their risk. AI chips can lose value quickly as newer models emerge, and there are other risks like falling demand or xAI facing setbacks.
Shifting resources within the Musk empire
With xAI's finances already stretched, Musk has been using creative ways to raise money. SpaceX, another company he owns, recently invested $2 billion into xAI, essentially shifting funds from one Musk business to another. Additionally, when xAI borrowed $5 billion in June, it used Grok's intellectual property as part of the collateral, according to people aware of the deal.
Since developing and training large AI models requires massive amounts of cash, xAI may have to raise even more in the near future. Unlike competitors such as OpenAI and Anthropic, which partner with cloud service providers to help cover costs, xAI has chosen to build and run its own infrastructure.
High costs and limited revenue
Cash is leaving xAI almost as fast as it's coming in. Financial documents shared with potential lenders earlier this year suggested that the firm was on track to spend about $13 billion in 2025. The startup is not currently profitable and generates minimal revenue.
xAI is now looking at a more complex funding route, which involves leasing chips rather than buying them outright. While this could ease some immediate financial strain, it also creates long-term obligations.
Investor confidence in Musk
Despite the challenges, Musk's track record still inspires confidence among many investors. His success with rockets and electric vehicles gives some hope that xAI's unconventional path might pay off. Many backers believe Musk would step in to support xAI using other parts of his business empire, if necessary.
The company built its first massive data centre in Memphis, Tennessee - called Colossus - in just 122 days. It originally held 100,000 Nvidia GPUs, making it one of the largest AI chip clusters globally. Just 92 days later, the centre doubled in size to 200,000 GPUs.
'That is like superhuman, and as far as I know there's only one person in the world who could do that,' said Nvidia CEO Jensen Huang in a podcast last year. 'Elon is singular in his understanding of engineering and construction and large systems and marshalling resources.'
Plans for a second super-sized data centre
xAI has plans to use one million chips for Grok. To finance its second, even larger data centre - Colossus 2 - it is once again turning to Valor. The firm has previously invested in Musk's companies like SpaceX, Tesla, The Boring Company, SolarCity and Neuralink.
Valor and other private equity backers are expected to contribute their own funds to a financing structure that would then borrow billions more from private credit funds. The loan would be repaid with the fees xAI pays for using the chips. If the firm fails to make payments, lenders would have the right to seize the chips.
Recent debt terms
The $5 billion corporate debt issued by xAI recently included bonds and loans backed by assets like data centres, Nvidia chips and the Grok codebase. The bonds carry a steep yield of 12.5 per cent.
If xAI defaults, lenders would have the option to rent out Colossus to other AI firms and could also claim rights to Grok, which is integrated into other Musk projects.
Due to the terms of this financing, xAI can only borrow another $5 billion in corporate debt, excluding any chip lease arrangements.