What Musk's xAI $5 Billion Debt Raise Means for AI
The lines between Elon Musk’s Tesla (TSLA) and xAI are starting to blur. Investors are unsure how much access Tesla has to the AI unit. In addition, efforts to raise debt to support xAI may have an impact on Tesla stock.
xAI is seeking $5 billion in debt to raise. It would offer a floating-rate term, fixed rate, and secured bonds. Unfortunately, the issuance faces weak investor demand. As a result, xAI is offering a floating-rate loan that is 700 basis points above the Secured Overnight Financing rate. The fixed-rate loan and secured notes would both pay a yield of around 12%.
Bloomberg reported that xAI loses around $1 billion a month. It could go through nearly $13 billion in 2025. This cash burn increases the urgency of raising cash. xAI would use the funds to support the business and to buy hardware. The company’s AI used 100,000 Nvidia (NVDA) H100 GPUs.
Legal troubles are a worry, too. The NAACP and an environmental group said they plan on suing xAI over air pollution created by its Memphis data center.
The financial pressures on xAI might worry investors over the profitability of companies that offer AI. They consume enormous amounts of energy. Competition for releasing a better AI chatbot increases costs. This may pressure many firms to cut costs by abandoning AI-related projects.
