Nvidia Teams Up with Elon Musk’s xAI in a $20 Billion Investment
Billionaire Elon Musk’s artificial intelligence startup, xAI, is broadening its funding round to an impressive $20 billion, with backing from investors such as Nvidia Corp, as per reports. Funding for xAI encompasses both equity and debt via a special purpose vehicle that is set to acquire Nvidia’s processors and subsequently lease them to xAI for its Colossus 2 project, which represents the company’s largest data center located in Memphis. The report indicates that Nvidia, under the leadership of CEO Jensen Huang, is set to invest close to $2 billion in the equity segment of the agreement. The decision underscores the chipmaker’s comprehensive strategy aimed at expediting the AI development of its customers.
xAI’s financing round — initially estimated at approximately half the current size — has the potential to grow even larger. The arrangement encompasses approximately $7.5 billion in equity alongside a potential $12.5 billion in debt facilitated through the SPV. According to the structure, the SPV will acquire Nvidia’s processors, which xAI will lease for a duration of five years. This design enables investors to recoup their capital incrementally, with the loan being secured by the GPUs themselves rather than the company. The structure has the potential to serve as a blueprint for other technology companies aiming to navigate significant debt exposure. The count of active investors on the National Stock Exchange has surged by 44 per cent over the past year, reaching a total of 47.9 million at the close of September 2024. The increase in active clients is supported by the market rally, particularly with the Nifty 50. Apollo Global Management and Diameter Capital Partners are engaged in the debt segment of the financing, whereas Valor Capital is at the forefront of the equity round. Apollo is making a direct investment in xAI. The most recent investment comes in light of Musk’s assertion on X that xAI was “not raising any capital right now.” The agreement signifies yet another significant achievement in a year characterized by substantial investments in AI infrastructure.
Leading technology firms have invested tens of billions of dollars into the expansion of data centers and chip production initiatives. Earlier this week, OpenAI entered into a multiyear agreement to utilize chips from Advanced Micro Devices, while Meta Platforms Inc. obtained a substantial financing package amounting to $29 billion for data centres. In a significant move, Oracle Corp. has successfully raised $38 billion in debt, aimed at bolstering its cloud and AI operations. Nvidia executives have stated that the company will utilize its increasing financial strength to expedite the adoption of AI across various industries. During a Goldman Sachs conference in September, Colette Kress remarked that Nvidia intends to utilize its cash reserves for strategic acquisitions and share buybacks. However, she emphasized that the company’s primary focus is on empowering partners to accelerate the development and deployment of AI.
Despite its increasing valuation, xAI is reportedly keen on securing additional capital. The startup, which has previously secured approximately $10 billion in both equity and debt, is said to be consuming nearly $1 billion each month. Musk has leveraged his other ventures, including SpaceX, to support the funding of xAI’s operations. Later this year, Tesla shareholders are poised to cast their votes on the proposition of whether the electric vehicle manufacturer should allocate resources towards the AI company. Musk has established AI as the cornerstone for numerous ambitious projects, ranging from self-driving cars to autonomous robots.
