AI "closed loop" continues: Musk's xAI is close to raising $20 billion, with Nvidia investing $2 billion and tying the deal to chips.

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Elon Musk’s AI startup xAI is advancing a round of financing as high as $20 billion through an innovative structure directly “linked” to chip procurement.

The most notable aspect of this financing is that chip giant Nvidia will not only participate as a key equity investor, possibly contributing up to $2 billion, but the entire financing structure is also closely tied to xAI’s plan to purchase Nvidia GPUs.

The core goal of these funds is to provide computing power support for xAI’s large-scale “Colossus 2” data center project in Memphis.

Ingenious “Chip Leverage”

Media, citing insiders, report that the $20 billion total will be split into about $7.5 billion in equity and $12.5 billion in debt.

The transaction does not inject funds directly into xAI, but operates via the establishment of an SPV. This SPV will use the raised capital to purchase Nvidia processors. Subsequently, xAI will obtain usage rights for these chips from the SPV under a five-year lease contract. This design allows Wall Street financial investors to recoup their investment.

This unique transaction structure, with physical GPU assets as underlying support, offers tangible hardware as a credit guarantee for investors, reducing exposure to the risks of investing in a high-risk startup. For xAI, it cleverly avoids the pressure of putting massive liabilities directly onto its own balance sheet.

Industry insiders comment that this model may provide a “financing template” for other tech companies that also need to invest huge sums in AI infrastructure.

Reportedly, the equity portion of this deal is led by Valor Capital, with participation from Nvidia and Apollo Global Management; the debt financing portion has attracted firms like Apollo and Diameter Capital Partners.

It’s worth noting that Nvidia’s move highlights its strategic intent that goes beyond mere supplier. Nvidia executives have stated they will use the company’s financial strength to accelerate AI deployment across industries. By exchanging “investment for orders,” Nvidia helps fast-track development for clients like xAI, while at the same time locking in its products’ sales channels—building a powerful commercial “closed loop.”

Computing Power “Arms Race”

For xAI, which was founded just over a year ago, capital injection is extremely urgent. Reportedly, the company’s monthly cash burn reaches as high as $1 billion.

After completing about $10 billion in equity and debt financing earlier this year, its massive computing power construction plans still face a huge funding gap. To remedy this, Musk has begun leveraging resources from his business empire to “inject blood” into xAI, including bringing in investment from SpaceX, while Tesla shareholders will soon vote on whether to invest in xAI.

This massive financing by xAI is a microcosm of the current feverish infrastructure investment in the AI industry. To build a moat of computing power needed for top AI model development, tech giants are pouring in tens of billions at an unprecedented rate.

Recently, OpenAI announced a chip partnership with AMD, Meta signed a $29 billion financing scheme for its data center project, and Oracle raised $38 billion in debt for its infrastructure business.

In this computing power-centered race, nobody wants to be left behind.

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