A recent report indicates that a collective of investors, including Nvidia, is backing Elon Musk’s xAI, which has raised $20 billion in its current funding round.
This funding effort consists of both debt and equity sourced from special purpose vehicles that involve purchasing Nvidia chips and renting them to xAI, as noted by an insider speaking to Bloomberg.
The AI venture is expected to utilize these processors for its extensive Memphis data center, specifically the Colossus 2 project.
According to officials, Jensen Huang’s semiconductor firm has invested up to $2 billion in this deal’s equity.
The report further mentions that Apollo Global Management and Diameter Capital Partners are involved in raising debt, while Barrow Capital will lead the equity portion of the deal. Apollo is also contributing investment to xAI.
Nvidia has opted not to comment, and Apollo, Diameter, Valer, and xAI did not respond promptly to inquiries from the newspaper.
An insider revealed to Bloomberg that xAI plans to allocate the funds, with $7.5 billion going into stakes in the special purpose entity and $12.5 billion earmarked for debt.
The intended use of the funds includes acquiring Nvidia processors and renting chips over a five-year period.
This intricate transaction model might serve as a template for other firms aiming to minimize debt while progressing with AI initiatives.
High-tech companies are investing massive amounts into AI infrastructure and racing to construct costly data centers that can support emerging tech applications.
AMD, for instance, announced that it has finalized an agreement to deliver hundreds of thousands of AI chips to OpenAI over several years, potentially involving a deal that would provide the company with 10% of its stock.
Meanwhile, Mark Zuckerberg’s Meta has locked in various multi-billion dollar agreements, such as a recent $29 billion loan for a new data center location.
Oracle has also secured a $38 billion debt package to facilitate data centers reliant on substantial energy consumption.
Leading Nvidia executives have expressed intentions to raise funds to hasten AI advancements within their company and the wider industry.
At a recent Goldman Sachs conference, Nvidia hinted at exploring strategic buybacks and acquisitions, although the primary goal remains channeling cash to assist other companies in bolstering their AI projects.
Amid this surge in funding for new infrastructure pursuits, Musk’s AI ventures are eager for additional financial support.
Ealier this year, xAI raised approximately $10 billion in corporate equity and debt. However, this figure may not suffice, as reports suggest the company is burning through $1 billion monthly.
Musk, recognized as the wealthiest individual with a net worth of $484 billion, is eyeing investment prospects in other companies within his sphere, including Rocket and SpaceX, according to Forbes.
Later this year, Tesla investors will vote on whether the electric vehicle manufacturer should also invest in xAI.
Musk’s corporate portfolio is increasingly intricate, as he maintains that advancements in AI technology are vital for the success of other enterprises, such as fully autonomous driving for Tesla and robotic initiatives.
