xAI Corp., the AI firm founded by Elon Musk, is arranging a $5 billion debt sale to support its spending on data center infrastructure. This aims to help the company compete with other AI developers like OpenAI and Google LLC. The debt sale also coincides with a separate stock sale, through which xAI employees plan to sell shares worth $300 million.
The $5 billion debt package, initiated on Monday, June 2, reportedly includes financial instruments such as a term loan B, a fixed-rate term loan, and senior secured notes. Morgan Stanley is managing the deal, with commitments from investors due by June 17. Discussions regarding pricing indicate a double-digit interest rate on parts of the debt, with a projected 7 percentage points over the benchmark rate for the floating-rate component and about a 12% yield on the senior notes. Reports suggest that initial demand for the debt sale has exceeded $3.5 billion. Neither xAI nor Morgan Stanley commented on the matter.
This financial move by xAI follows its merger with X Corp, Musk’s social media platform and the erstwhile Twitter, under xAI Holdings Corp. The combined entity was assessed at $113 billion in March, excluding debt. In this valuation, xAI was appraised at $80 billion, and X was valued at $33 billion. This structural integration, formalizing an earlier acquisition of X (previously Twitter) in October 2022, did not involve typical Wall Street oversight, including independent third-party valuations. The merger was partly driven by X’s financial situation, which included $13 billion in debt and difficulties with its advertising business after content moderation policy changes. The combination allows X to use xAI’s valuation, which reached $45 billion after its recent private funding round in late 2024.
Launched in 2023 as a competitor to AI firms, xAI introduced its AI chatbot, Grok, soon after. The company has since announced plans to build a supercomputer named “Colossus,” expected to cost billions of dollars, with funds from the current debt sale likely contributing to its development. Currently, xAI uses over 200,000 graphics processing units (GPUs) for AI training and inference. Musk has stated a goal to expand this capacity with more than a million new chips for a facility near Memphis, Tennessee, complementing the Colossus data center. Earlier reports also indicated xAI’s broader fundraising goal of $20 billion from venture capitalists.
Musk has stated that the future of xAI and X are interconnected. To keep pace with models like OpenAI’s GPT, xAI has added functionalities to Grok, including a “Memory” feature for conversational context and “Grok Studio” for collaborative AI application development. The company has also formed alliances; Microsoft Corp. integrated Grok 3 into its Azure AI Foundry platform. Additionally, Telegram agreed to a deal for Grok’s integration into its messaging app. These developments come after Musk served in an advisory role to President Donald Trump and led the Department of Government Efficiency. This period saw criticism of Musk and concerns about his companies’ performance, with Tesla’s shares seeing a 20% decline since the presidential inauguration.
