xAI's Debt Raising Complicated

Morgan Stanley's effort to secure $5 billion in debt financing for Elon Musk's AI venture, xAI, has been complicated by a public feud between Musk and Donald Trump. The debt package, intended to fund xAI's AI infrastructure expansion, including a significant data centre in Memphis, faces uncertainty due to Trump's potential to retaliate against those who oppose him. Despite this, xAI projects substantial earnings growth, anticipating over $13 billion in annual earnings by 2029.

The debt package includes a term loan B, a fixed-rate term loan, and senior secured notes. xAI's financials reveal a typical startup profile, with $52 million in gross revenue during the first quarter and a $341 million loss before interest, taxes, depreciation, and amortisation. However, the company forecasts significant improvement, projecting $2.7 billion in EBITDA by 2027 and $13.1 billion by 2029. xAI anticipates $1 billion in gross revenue by the end of this year, growing to $14 billion by 2029.

This debt raise occurs alongside a secondary stock sale valuing xAI at $113 billion, highlighting investor enthusiasm for AI and Musk's influence. The funds will support general corporate purposes, with commitments due by June 17. The debt is linked to XAI Holdings, encompassing both xAI and Musk's social media platform X. xAI's Memphis data centre, Colossus, which currently operates 200,000 GPUs for AI training and plans to add 1 million more, could benefit from the debt proceeds.