Elon Musk’s xAI launches $5B debt sale to fuel AI infrastructure investments

XAI Corp., the artificial intelligence startup founded by Elon Musk, is arranging a $5 billion debt sale that will help the company to keep up its lavish spending on data center infrastructure as it strives to keep pace with rivals such as OpenAI and Google LLC.

The debt sale was first reported today by Bloomberg, which cited anonymous sources as saying that Morgan Stanley is marketing the deal. It came as the Financial Times separately reported today that Musk is looking to sell $300 million of xAI’s shares in a secondary stock sale. That deal will enable xAI employees to sell their shares, ahead of a more substantial investment round targeting external investors.

The latest financial maneuver comes just weeks after Musk controversially merged xAI with his social media platform X Corp. The two companies are now owned by the same parent entity, called xAI Holdings Corp., which was valued at around $113 billion, excluding debt.

It also signals Musk is serious about his commitment to double down on his technology ventures, after previously stepping back to focus on helping out new U.S. President Donald Trump at the White House, where he led the government cost-cutting team known as the Department of Government Efficiency.

Musk said last week he is now “super-focused” on his companies, X, xAI and Tesla Inc. at a time when “critical technologies” are being rolled out. He also cited “blowback” from the controversial nature of his work at DOGE as a reason for returning to the tech firms.

The value of xAI Holdings was determined in March at the time of the merger, with xAI priced at $80 billion and X said to be worth $33 billion. Musk acquired X, then known as Twitter, in October 2022, and the consolidation between the two firms was notable for bypassing Wall Street’s oversight mechanisms, such as third-party valuations, due to the novel structure of its ownership.

It’s believed that X’s precarious finances were one of the main motivations for the merger. The social media platform was said to have debts of around $13 billion, and its advertising business has struggled after Musk alienated many advertisers after changing the platform’s content moderation policy.

By merging the two companies, X can leverage xAI’s soaring value, with the AI startup racking up a valuation of $45 billion following its most recent private funding round in late 2024.

XAI was launched in 2023 as a rival to industry leader OpenAI, and it launched its flagship AI chatbot Grok shortly afterwards. It has since announced plans to build an enormous supercomputer known as “Colussus” that’s expected to cost billions of dollars. The funds from today’s debt sale will likely help to pay for that investment. At present, it’s already operating with more than 200,000 graphics processing units for AI training and inference, and Musk said last month he wants to expand it with more than a million new chips.

Besides the debt sale, xAI is also trying to raise around $20 billion from venture capitalists, according to an earlier Bloomberg report.

Ultimately, Musk believes the futures of xAI and X are “intertwined,” and he believes there’s enormous potential to be had by blending advanced AI models with the social media platform’s vast amounts of data.

XAI has been racing to keep pace with OpenAI’s GPT large language models, and earlier this year rolled out a new “Memory” feature for Grok that enables better conversational context. Other new features include the “Grok Studio” workspace for collaborating on AI-applications powered by Grok.

The AI startup has also cemented a number of key partnerships, with Microsoft Corp. recently adding Grok 3 to the Azure AI Foundry platform, and Telegram agreeing a deal that will see Grok integrated with the popular messaging app. XAI also invested $300 million into Telegram.

However, it hasn’t been all plain sailing for xAI and Grok. Last month, it was reported that Grok couldn’t stop talking about supposed “white genocide” in South Africa, and it has previously generated some controversy due to its erratic voice mode outputs and allegations of politically biased content filtering. In addition, xAI is currently involved in a trademark dispute with an AI startup called Bizly AI Inc., which claims it registered a patent for the name “Grok” several years ago, and believes that Musk is trying to “steal” it.

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