Musk’s xAI Nears $20B Capital Raise, Structured Around NVIDIA Chips

Elon Musk’s AI startup xAI is reportedly preparing to raise up to $20 billion in fresh capital, with a significant portion of the funding linked directly to NVIDIA GPUs, according to multiple sources familiar with the matter.

Financing Structure and NVIDIA’s Role

The upcoming round is expected to combine $7.5 billion in equity and up to $12.5 billion in debt through a special purpose vehicle that will acquire NVIDIA processors and lease them back to xAI. NVIDIA itself is expected to invest up to $2 billion in the equity portion, positioning itself not just as a hardware provider but also a financial backer of xAI’s compute infrastructure.

This arrangement effectively locks in GPU demand for NVIDIA while allowing xAI to access critical hardware without immediate capital outlay.

Powering Colossus 2 and GPU Leasing

The chips purchased through the funding structure are intended for xAI’s Colossus 2 data center in Memphis. This massive compute hub is a cornerstone of the company’s strategy to train and scale advanced AI models. Under the plan, the GPUs will be leased to xAI for five years, reducing upfront hardware risk while expanding compute capacity.

The funding target far exceeds earlier projections of $10 billion. While Elon Musk has previously denied raising at a $200 billion valuation, sources indicate that rising chip costs, fierce competition for compute power, and the need to scale operations have pushed the figure significantly higher.

NVIDIA’s dual role as both vendor and financier underscores a growing trend of “circular financing” in AI, where chipmakers invest in AI startups to secure their own market dominance.

Risks, Reactions and Market Implications

• Circularity concerns: Some analysts warn that NVIDIA financing the hardware it sells could raise questions of conflict of interest and inflate valuations.
• Debt burden: The heavy debt structure could strain xAI’s balance sheet if revenue and usage fail to keep pace with capital costs.
• Market impact: NVIDIA’s stock saw a modest bump following reports of its planned participation, signaling investor confidence in long-term AI demand.
• Scaling pressure: xAI already spends heavily to sustain its AI ambitions, making this capital infusion crucial to maintain its growth trajectory.