This article first appeared on GuruFocus.
Oct 8 – Elon Musk’s artificial intelligence startup xAI (XAI) is raising about $20 billion through a mix of equity and debt, according to a Wednesday Bloomberg report.
The deal centers on an unusual structure that ties financing directly to Nvidia (NASDAQ:NVDA) hardware for xAI’s upcoming Colossus 2 data center in Memphis.
Nvidia stock rose about 2% on the news.
The funding is being arranged through a special-purpose vehicle, or SPV, which will purchase Nvidia’s GPUs and lease them back to xAI. About $7.5 billion is expected to come from equity investors, with another $12.5 billion in debt. Nvidia itself will contribute roughly $2 billion in new equity, making it both a supplier and a financial backer in the same transaction.
Private equity firms Apollo Global Management (APO) and Diameter Capital Partners are arranging the debt portion, while Valor Capital is reportedly leading the equity round. The GPUs will serve as collateral, giving lenders recourse to valuable hardware rather than xAI’s balance sheet if the company falters.
Analysts have described such setups as examples of AI circularity, where chipmakers finance customers’ purchases to accelerate adoption of their own technology. Nvidia executives have previously said the company plans to use its strong cash flows to help partners expand infrastructure spending.
For Musk, the structure offers rapid access to computing capacity without issuing new shares or increasing corporate leverage. For Wall Street, it represents a growing market in AI-related asset financing.
xAI, which has already raised about $10 billion this year, is reportedly spending close to $1 billion monthly as it builds large-scale AI systems to compete with OpenAI and Anthropic. The Colossus 2 project is central to those ambitions, serving as the backbone for training xAI’s next generation of models.