Nvidia's $2 Billion Investment in Elon Musk's xAI as Part of $20 Billion Financing Deal

Elon Musk posted on X in September that the company was "not raising any capital right now."

Elon Musk's artificial intelligence startup xAI is raising more financing than initially planned, tapping backers including Nvidia Corp. to lift its ongoing funding round to $20 billion, according to people with knowledge of the matter.

The financing includes equity and debt in a special purpose vehicle that will buy Nvidia processors and rent them to xAI for use in its Colossus 2 project, said the people, who asked not to be identified because the information is private. This project represents xAI's largest data center site, located in Memphis.

Nvidia is investing as much as $2 billion in the equity portion of the transaction, the people said, a strategy by the chipmaker that helps accelerate its customers' AI investments. XAI's fundraising effort, previously reported at half the amount, may continue to grow.

A representative for Nvidia declined to comment. A spokesperson for xAI didn't respond to a request for comment. Musk posted on X in September that the company was "not raising any capital right now."

This massive financing represents the latest development in the AI industry, where major tech companies have invested tens of billions at a rapid pace to build infrastructure necessary for developing advanced AI models. Earlier this week, OpenAI announced a deal to use Advanced Micro Devices Inc. chips over multiple years. Meta Platforms Inc. has secured several multibillion-dollar deals in recent months, including a $29 billion financing package for data centers. Oracle Corp. also raised a $38 billion debt package for its infrastructure.

XAI's financing would be split between about $7.5 billion of equity and as much as $12.5 billion of debt in the SPV, the people said. The vehicle will purchase Nvidia processors, and Musk's artificial intelligence startup would then rent these chips for five years, allowing financial backers to recoup their investment. This unique deal structure, backed by GPUs rather than the company itself, could provide a template for tech firms looking to decrease debt exposure.

Nvidia's leadership has stated they will leverage the company's growing financial strength to accelerate artificial intelligence deployment across the industry. In September, Chief Financial Officer Colette Kress told attendees at a Goldman Sachs conference that Nvidia will repurchase stock and pursue strategic acquisitions where possible, but the priority is using cash to help other companies implement AI more quickly.

Apollo Global Management is participating in the debt raise, as is Diameter Capital Partners, the people said. Valor Capital is leading the equity portion of the deal, as previously reported by Bloomberg. Apollo is also investing.

A Diameter spokesperson declined to comment, while representatives for Apollo and Valor didn't respond to requests for comment.

Data center capacity is considered essential for developing top AI models, though opinions differ on how much computing power can improve the technology. In US bond markets alone, tech companies have raised about $157 billion this year - up 70% from last year.

Musk's xAI is particularly capital-hungry. The firm, having already raised about $10 billion of corporate equity and debt earlier this year, still requires billions more as the company reportedly burns through $1 billion monthly. Musk has also leveraged his other companies, including SpaceX, for investment into xAI. Later this year, Tesla Inc. shareholders will vote on whether the electric vehicle manufacturer should invest in xAI as well.

Musk has positioned AI as the foundation for many of his futuristic products, including self-driving cars and fully autonomous robots.

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)