Nvidia reportedly to invest up to $2bn in Elon Musk’s xAI

Nvidia is set to participate in a $20bn funding round for xAI, the AI venture led by Elon Musk, reports Bloomberg citing sources familiar with the negotiations.

The investment package combines equity and debt, with Nvidia’s contribution in equity reaching as much as $2bn.

The capital will be used by xAI to acquire Nvidia’s graphics processing units (GPUs) for its Colossus 2 facility, a large-scale data centre located in Memphis, Tennessee.

The financing structure involves a special purpose vehicle (SPV) that will purchase the Nvidia hardware, which xAI will then lease for a five-year term.

This arrangement allows institutional investors to recover their investment through the chip rentals, with the debt collateralised by the GPUs rather than xAI’s broader assets.

xAI’s funding round, previously reported at half the current size, is split into an estimated $7.5bn equity component and up to $12.5bn in debt.

Valor Capital is leading the equity raise, with Apollo Global Management and Diameter Capital Partners participating in the debt tranche.

Apollo is also investing in the equity portion, according to information previously reported.

Nvidia’s approach to supporting industry-wide AI rollouts with direct capital has been articulated by its chief financial officer, Colette Kress.

Speaking at a Goldman Sachs event held last month, Kress said that Nvidia will buy back stock and pursue strategic acquisitions when appropriate, but the top priority is using cash to help other companies adopt AI more quickly.

xAI is under pressure to secure additional funding due to high operating costs, with Bloomberg reporting cash burn rates around $1bn monthly.

Earlier this year, the company raised about $10bn in combined equity and debt.

Musk has also leveraged capital from other entities within his corporate group, including SpaceX.

Tesla shareholders are due to vote later in the year on whether the automotive company will invest in xAI.

Musk continues to position AI at the centre of his commercial activities, including self-driving technology and robotics.

He posted on X in September that xAI was “not raising any capital right now.”

This latest funding round of xAI comes amid a surge in capital commitments across the AI sector. OpenAI recently announced a long-term agreement to use AMD chips.

Meta Platforms has secured a $29bn package for data centre expansion, and Oracle has completed a $38bn debt raise targeting infrastructure.

Last month, OpenAI and Nvidia established a partnership to implement 10GW of Nvidia systems for the ChatGPT developer’s advanced AI infrastructure.

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This initiative is designed to enhance the training and operation of OpenAI's future AI models, advancing the pursuit of superintelligence.

"Nvidia reportedly to invest up to $2bn in Elon Musk’s xAI" was originally created and published by Verdict, a GlobalData owned brand.

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