Morgan Stanley Leads $5B Debt Package for xAI
Elon Musk’s artificial intelligence company,
xAI, is making headlines once again as it secures a $5 billion debt package managed by Morgan Stanley. This latest round of funding is part of xAI’s strategy to accelerate its push into the AI sector and underlines investor confidence—and caution—in high-growth AI ventures. The debt deal includes a mix of financial instruments:
- A floating-rate term loan B, offered at a discount and tied to a margin of 700 basis points above the SOFR benchmark
- An alternative fixed-rate loan and senior secured notes at 12% interest
This package, launched in June 2025, is structured in three segments and leverages a “best efforts” approach, indicating that the final size will depend on investor demand, with Morgan Stanley and co-lenders not guaranteeing the full amount or committing their own capital[1][2][3].
Ambitious Valuation and Ongoing Equity Raises
Alongside the debt package,
xAI is exploring equity funding, reportedly eyeing up to $20 billion in new capital. The company’s share sale valued it as high as $113 billion, placing it among the world’s most valuable AI startups and allowing employees to cash out shares while maintaining growth momentum[1][3]. According to insiders, xAI could target a valuation ranging between $120 billion and $200 billion as talks with investors intensify.
Colossus Data Center Expansion
Proceeds from the financing will fuel xAI’s ambitious expansion of its Memphis-based Colossus data center. The current facility operates approximately 200,000 GPUs dedicated to AI training, with plans underway to increase this number by another 1 million GPUs at a nearby site. This investment positions xAI to compete aggressively in the AI hardware and infrastructure race, bolstering its capability to deliver advanced artificial intelligence services[1].
Morgan Stanley’s Cautious Return to Musk’s Ventures
Morgan Stanley’s risk-mitigated approach marks a departure from previous Musk-linked megadeals. After holding billions in unsold debt from Musk’s 2022 acquisition of social platform X, the bank is now strategically limiting its exposure and using investor demand to set loan volume[2][3]. The high-yield terms—reflective of broader economic uncertainty and skepticism toward unproven AI business models—highlight lender caution around large, early-stage tech bets.
Competitive AI Landscape and Market Scrutiny
Musk’s latest financial maneuvers for xAI arrive as the sector faces heightened scrutiny over aggressive valuations and operational sustainability. With competitors like
ChatGPT (by OpenAI) and a rapidly evolving regulatory landscape, xAI must prove the commercial viability of its ambitious projects. Critics have questioned the fair market value assigned to the merged xAI-X entity, pointing to significant overlap in ownership and operations—even as the $113 billion benchmark attracts substantial investor attention[1][3].
Outlook
As xAI pursues its $5 billion debt raise and eyes even larger equity rounds, its ability to balance rapid expansion with profitability and disciplined capital management will be closely watched by Wall Street, industry insiders, and technology rivals alike. The combination of bold fundraising, unprecedented scale in AI infrastructure, and Musk’s high-profile leadership ensures xAI remains a major force in the future of artificial intelligence.
