Barely a month after Elon Musk engineered the unconventional merger of his AI startup xAI and the social media platform X, the resulting entity, XAI Holdings Corp., is already looking for a massive capital injection. People familiar with the matter report that the company is in discussions with investors to secure roughly $20 billion in new funding, with suggestions the final amount could climb higher.
Should the deal proceed, it could assign the combined operation a valuation exceeding $120 billion, a significant step up from the $113 billion figure cited during the March/April merger. This scale would also make it the second-largest private funding event on record, surpassed only by OpenAI’s $40 billion financing completed earlier this year.
The talks, described as being in their early stages, reportedly aim for completion within the next few months. A primary use for the potential new capital could be to address the considerable debt – around $13 billion – that X carried into the merger and which now sits on XAI Holdings’ books.
This financial strain was previously highlighted by Musk himself, who reportedly acknowledged in an internal email saying, “Our user growth is stagnant, revenue is unimpressive, and we’re barely breaking even.” Servicing this debt reportedly cost the company around $200 million in March 2025 alone.
The Genesis of XAI Holdings
The pursuit of capital follows closely on the formation of XAI Holdings Corp. in late March and early April 2025. That merger combined Musk’s privately held AI venture, xAI (valued at $80 billion at the time), with the social media company X (valued at $33 billion including debt).
The resulting $113 billion entity was formed through an all-stock transaction, notably bypassing conventional Wall Street checks like third-party valuations or independent board reviews, with Musk assuming the presidency.
Musk stated the rationale involved sharing value and addressing X’s financial woes, saying, “xAI and X’s futures are intertwined…This combination will unlock immense potential by blending xAI’s advanced AI capabilities and expertise with X’s massive reach.” At the time, reports suggested original X Corp investors, including Saudi Arabia’s Kingdom Holding, would own 25% of the new entity.
Funding History and Investor Landscape
This potential $20 billion round dwarfs xAI’s previous fundraising. The standalone AI venture closed a $6 billion Series C round in December 2024, achieving a post-money valuation estimated between $40 billion and $50 billion.
That round attracted prominent investors like Valor Equity Partners, Andreessen Horowitz (A16Z), Sequoia Capital, Fidelity Management & Research Company, Kingdom Holding, Blackrock, Lightspeed Venture Partners, MGX, Morgan Stanley, OIA, QIA, and Vy Capital.
Nvidia and AMD were also noted as strategic investors supporting infrastructure. Signs of a new funding push emerged around April 21, 2025, when Musk reportedly held an investor call discussing assigning a “proper valuation” to the company and potentially mentioning a “$1 billion run rate figure,” as reported by PYMNTS.
Potential backers include previous Musk investors Antonio Gracias (Valor Equity Partners), who also serves in Musk’s Department of Government Efficiency (DOGE), and Luke Nosek (Gigafund).
Building the AI Engine
The capital would fuel XAI Holdings’ efforts to compete in the intense AI landscape, centered around its Grok chatbot and underlying infrastructure. The company has continued product development post-merger, launching a commercial API for Grok 3 and Grok 3 Mini models in early April.
The API allows developer integration but currently has limitations detailed in xAI’s documentation, including a knowledge cut-off date of November 17, 2024, and a 131,072-token context window – smaller than some early projections for Grok 3.
Just days later, xAI debuted Grok Studio on Grok.com, a web-based collaborative workspace featuring Google Drive integration, placing it against offerings like OpenAI’s Canvas and Google’s Gemini Canvas.
Underpinning these efforts are substantial infrastructure plans, notably the “Colossus” supercomputer , potentially scaling towards two million GPUs by late 2026 with partners like Dell and Supermicro, requiring significant investment.
Navigating Headwinds
Despite the funding ambitions, XAI Holdings faces challenges. The X platform component remains under EU regulatory scrutiny concerning the Digital Services Act (DSA), potentially leading to large fines over content moderation. The Grok name is also entangled in a trademark dispute with startup Bizly; xAI’s own application for the mark is currently suspended by the USPTO due to Bizly’s prior registration.
Additionally, the unconventional, Musk-controlled merger process that formed XAI Holdings might face investor scrutiny as the company seeks external capital.
