Nvidia to invest in Elon Musk's AI startup xAI as part of $20 billion deal

Funding for xAI includes both equity and debt through a special purpose vehicle that will purchase Nvidia's processors and lease them to xAI for its Colossus 2 project

Billionaire Elon Musk’s artificial intelligence (AI) startup, xAI, is expanding its funding round to $20 billion, with support from investors including Nvidia Corp, Bloomberg reported.

 

Funding for xAI includes both equity and debt through a special purpose vehicle (SPV) that will purchase Nvidia’s processors and lease them to xAI for its Colossus 2 project, the company’s largest data center based in Memphis.

xAI’s financing structure and Nvidia’s role

 

According to the report, Nvidia, led by CEO Jensen Huang, will invest nearly $2 billion in the equity portion of the deal. The move reflects the chipmaker’s broader strategy to accelerate customers’ AI development.

 

xAI’s financing round — initially estimated at roughly half the current size — could still expand further. It includes about $7.5 billion in equity and up to $12.5 billion in debt through the SPV.

 

Under the structure, the SPV will buy Nvidia’s processors, which xAI will lease for five years. This design allows Wall Street investors to recover capital gradually while the loan is secured by the GPUs themselves rather than the company. The structure could become a model for other tech firms looking to manage high debt exposure.

 

Apollo Global Management and Diameter Capital Partners are participating in the debt portion of the financing, while Valor Capital leads the equity round. Apollo is also investing directly in xAI.

 

The latest investment follows Musk’s recent claim on X that xAI was “not raising any capital right now.”  ALSO READ | OpenAI slams Musk's xAI lawsuit, calls it an attempt to bully ex-workers

AI industry sees wave of mega funding

 

The deal marks another milestone in a year dominated by massive AI infrastructure funding. Major technology companies have poured tens of billions of dollars into data center and chip expansion projects.

 

Earlier this week, OpenAI signed a multiyear agreement to use chips from Advanced Micro Devices (AMD), while Meta Platforms Inc. secured a $29 billion financing package for data centres. Meanwhile, Oracle Corp. raised $38 billion in debt to expand its cloud and AI operations.

 

Nvidia’s expanding AI influence

 

Nvidia executives have said the company will leverage its growing financial strength to accelerate AI adoption across industries.

 

At a Goldman Sachs conference in September, Chief Financial Officer Colette Kress stated that Nvidia plans to use cash reserves for strategic acquisitions and share buybacks, but its priority remains enabling partners to develop and deploy AI faster.

Musk’s xAI eyes more capital as burn rate rises

 

Despite its growing valuation, xAI is said to be eager for capital. The startup, which previously raised about $10 billion in equity and debt, reportedly burns through nearly $1 billion per month.

 

Musk has tapped into his other ventures, including SpaceX, to help fund xAI’s operations. Later this year, Tesla shareholders are set to vote on whether the electric vehicle maker should invest in the AI company.

 

Musk has positioned AI as the foundation for several of his futuristic projects, from self-driving cars to autonomous robots.