AI "closed loop" continues: Elon Musk's xAI is close to raising $20 billion, with NVIDIA investing $2 billion for equity and "linked to chips"

Elon Musk's artificial intelligence startup xAI is advancing a financing round of up to $20 billion with an innovative structure directly linked to chip procurement.

The most notable feature of this financing is that chip giant NVIDIA will not only participate as a significant equity investor, potentially contributing up to $2 billion, but the entire financing structure is deeply tied to xAI's plan to procure NVIDIA GPUs.

It is reported that the core goal of this funding is to provide computing power support for xAI's "Colossus 2" large data center project located in Memphis.

Clever "Chip Leverage"

Media reports citing informed sources indicate that the total amount of $20 billion will be split into approximately $7.5 billion in equity and $12.5 billion in debt.

The transaction will not inject funds directly into xAI but will operate through the establishment of a Special Purpose Vehicle (SPV). This SPV will use the raised funds to purchase NVIDIA processors, after which xAI will obtain the right to use these chips from the SPV through a five-year lease agreement. This design allows Wall Street financial investors to recoup their investments.

This unique transaction structure, which uses GPU physical assets as underlying support, provides tangible hardware assets that offer credit backing for investors, reducing the risk exposure of investing in a high-risk startup. For xAI, it cleverly avoids the pressure of directly incorporating massive liabilities into its balance sheet.

Industry insiders comment that this model may provide a financing template for other tech companies that also need to invest huge capital in AI infrastructure.

It is reported that the equity portion of this transaction is led by Valor Capital, with participation from NVIDIA and Apollo Global Management among others; the debt financing portion has attracted participation from companies such as Apollo and Diameter Capital Partners.

Notably, NVIDIA's involvement highlights its strategic intent to go beyond being a mere supplier. NVIDIA executives have stated that they will leverage the company's financial strength to accelerate AI deployment across the industry. By using an "investment for orders" approach, NVIDIA not only helps clients like xAI accelerate their development but also firmly locks in its product sales channels, creating a strong commercial "closed loop."

Computing Power "Arms Race"

For xAI, which was established just over a year ago, the injection of capital is extremely urgent. It is said that the company's monthly cash burn reaches $1 billion.

After completing approximately $10 billion in equity and debt financing earlier this year, its massive computing power construction plan still faces a significant funding gap. To address this, Musk has begun mobilizing resources from his business empire to "blood transfuse" xAI, including bringing in investments from SpaceX, while Tesla shareholders will later vote on whether to invest in xAI.

This massive financing for xAI is a reflection of the current heated investment in AI industry infrastructure. To build the computing power moat necessary for developing top AI models, tech giants are investing hundreds of billions at an unprecedented pace Recently, OpenAI announced a chip collaboration with AMD, Meta signed a $29 billion financing plan for its data center project, and Oracle also raised $38 billion in debt for its infrastructure business.

In this competition centered around computing power, no one wants to fall behind