Nvidia (NVDA.US) invests billions of dollars to invest in Musk xAI's financing amount and sprint to $20 billion

The Zhitong Finance App learned that, according to people familiar with the matter, XAI, an artificial intelligence startup owned by Musk, is advancing a round of financing, which exceeds the initial plan. It will include NVDA.US (NVDA.US) equity investment. Ultimately, the total amount of this round of financing is expected to reach 20 billion US dollars.

People familiar with the matter said that this financing includes both equity and debt, and that the use of funds will be directly linked to xAI's procurement of Nvidia GPUs for the “Colossus 2” project. According to information, Colossus 2 is xAI's largest data center site in Memphis.

People familiar with the matter further indicated that Nvidia plans to invest up to 2 billion US dollars in the equity portion of the deal. For the chipmaker, the move is a strategic move to accelerate customers' investment in AI. Earlier, it was reported that the scale of xAI's current round of financing was 10 billion US dollars, but at present, this figure is still likely to increase further.

Nvidia representatives declined to comment, and xAI's spokesperson did not respond to requests for comment. Meanwhile, Musk said on social networking platform X in September that the company “currently has no financing plans.”

This large-scale financing is just the latest example of the AI industry's financing boom. Currently, major technology companies are rapidly investing tens of billions of dollars to build the infrastructure needed to develop cutting-edge AI models. Earlier this week, OpenAI announced a multi-year partnership agreement with AMD (AMD.US) to adopt its chip products. Over the past few months, Meta Platforms (META.US) has signed a number of multi-billion dollar agreements, including a $29 billion financing package for data centers; Oracle (ORCL.US) has also raised $38 billion in debt funding for its infrastructure business.

According to people familiar with the matter, xAI's current financing will be divided into two parts: equity financing of about 7.5 billion US dollars and debt financing of up to 12.5 billion US dollars, and will establish a transaction structure through a special purpose entity (SPV). The SPV will be used to purchase Nvidia processors, then Musk's AI startup will use the chips as a five-year lease, and Wall Street investors can recover their investment through rent. This unique transaction structure uses GPUs as collateral for debt rather than the company's own assets, and will provide a set of operating models for technology companies that want to reduce their exposure to debt risk.

Nvidia executives have previously stated that they will use the company's growing financial strength to drive the deployment process of AI technology throughout the industry. In September of this year, Colette Kress, the company's chief financial officer, revealed to the audience at a Goldman Sachs conference that Nvidia will repurchase shares and carry out strategic acquisitions where possible, but the current priority is to use cash resources to help other companies apply AI technology more quickly.

People familiar with the matter also mentioned that both Apollo Global Management (APO.US) and Diameter Capital Partners participated in this debt financing. Earlier, it was reported that Valor Capital was the lead in this equity financing, and Apollo also participated in the equity portion of the investment.

A spokesperson for Diameter Capital Partners declined to comment, while Apollo and Valor representatives did not respond to requests for comment.

Although some people dispute whether improving computing power can actually advance AI technology, the industry generally believes that data center computing power is a necessary prerequisite for developing top AI models. In the US bond market alone, technology companies' financing volume since this year has reached about 157 billion US dollars, an increase of 70% over last year.

Musk's xAI is in particularly urgent need of funding. According to reports, the company raised about $10 billion through equity and debt earlier this year, but it still needs additional billions of dollars in financial support due to monthly cash consumption of up to 1 billion US dollars. Musk has also drawn funds from other companies under its umbrella (including space exploration technology company SpaceX) to invest in XAI. Later this year, Tesla (TSLA.US) investors will vote on whether to let the electric car maker invest in xAI.

Musk has positioned AI as the core foundation for many of its futuristic products, including autonomous vehicles and fully autonomous robots.