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Elon Musk’s xAI Set to Raise $5 Billion Debt Despite Tepid Investor Interest

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Elon Musk’s AI startup, xAI, is poised to close a $5 billion debt financing led by Morgan Stanley, although investor demand has been notably modest, according to sources familiar with the matter. The debt package includes a floating-rate term loan, a fixed-rate loan, and secured bonds, with allocations scheduled for Wednesday.

The floating-rate loan carries an interest rate of 700 basis points above the Secured Overnight Financing Rate, while the fixed-rate loan and secured notes offer yields near 12%, significantly higher than the current 7.6% average yield for high-yield bonds. This elevated cost reflects the risks investors associate with xAI’s unrated debt and lack of profitability to date.

Several potential investors declined to participate, citing concerns over xAI’s financial transparency and Musk’s previous financing history. Notably, Musk’s 2022 $44 billion acquisition of Twitter involved $13 billion in loans that lenders had to retain on their balance sheets for two years due to poor secondary market demand.

While the debt issuance was fully subscribed, total orders amounted to roughly 1.5 times the amount offered, below the typical 2.5 to 3 times seen in similar junk bond offerings. Unlike Musk’s Twitter debt deal—where banks guaranteed the sale and committed capital—this transaction is structured as a “best efforts” deal with no such guarantees from Morgan Stanley.

Beyond debt, xAI is also reportedly pursuing a $20 billion equity raise that could value the company above $120 billion, with some investors estimating up to $200 billion.

Elon Musk’s xAI Seeks $4.3 Billion Equity Raise Amid Massive Spending Plans

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Elon Musk’s AI startup xAI is reportedly in talks to raise $4.3 billion in equity funding, according to Bloomberg News. This new capital would be in addition to a $5 billion debt funding round already in progress, as xAI intensifies efforts to scale its artificial intelligence capabilities.

Founded in 2023, xAI has already raised $14 billion in equity to date. However, the company is now seeking fresh investment as it anticipates spending approximately $13 billion in 2025 alone — more than $1 billion per month, much of it earmarked for hardware, compute infrastructure, and top-tier AI talent.

Key Highlights:

  • The additional equity would bring total fundraising efforts to over $23 billion.

  • The company’s flagship product is Grok, a chatbot integrated with X (formerly Twitter), which xAI acquired earlier this year.

  • According to Bloomberg, xAI’s valuation has surged to $80 billion as of Q1 2025, up from $51 billion at the end of 2024.

  • Musk’s startup may benefit from a $650 million rebate from a manufacturing partner, helping to offset some of its rising costs.

Context and Competition:

Musk previously co-founded OpenAI in 2015 but stepped away from the board in 2018. Since then, he has become increasingly critical of OpenAI’s direction and established xAI as a competitor focused on “truthful” and “beneficial” AI.

OpenAI is reportedly aiming to raise up to $40 billion at a $300 billion valuation, with SoftBank involved in its latest funding round.

Industry Implications:

The AI space has become one of the most capital-intensive sectors in tech, as firms race to secure the massive computational power and top-tier research talent required to train frontier models. xAI’s projected 2025 cash burn is among the highest in the industry, underscoring Musk’s ambitious push to catch up with, and possibly surpass, competitors like OpenAI, Anthropic, and Google DeepMind.