Elon Musk’s AI company, xAI (PC:XAIIQ), is building a massive data center in Memphis known as Colossus 2, along with a large natural gas plant to power it. However, because of its limited finances, xAI is relying heavily on outside investors and unusual financing structures to fund the project, according to The Information. Instead of buying everything outright, the company is entering a $20 billion lease-to-own deal for hundreds of thousands of Nvidia chips (NVDA). The arrangement is being handled by Valor Equity Partners, a longtime Musk supporter, which is raising the money through a special purpose vehicle (SPV).
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Notably, the SPV is made up of $7.5 billion in equity, $12.5 billion in debt, and up to $2 billion from Nvidia. Under the deal, the chips will be leased to xAI for several years, with an option to purchase them at a later date. This approach gives xAI access to computing power without paying up front, but it also depends on the company being able to generate enough cash to cover the lease payments while managing its existing debt. In fact, xAI raised $5 billion in loans and bonds at interest rates as high as 12.5%, and reports suggest that it is burning through about $1 billion each month.
While other companies, such as CoreWeave (CRWV), have also borrowed against Nvidia chips, xAI’s deal is far larger and riskier, as it lacks the backing of big, profitable clients like Microsoft (MSFT). In addition, to provide energy for Colossus 2, xAI formed a joint venture with Solaris Energy called Stateline Power. xAI owns 49.9% of the project while Solaris owns 50.1%. Both firms have put in about $86 million, and Stateline has borrowed up to $550 million at an interest rate of around 10.25% with the goal of supplying more than 1 gigawatt of power by 2027.
What Is the Prediction for Tesla Stock?
When it comes to Elon Musk’s companies, most of them are privately held. However, retail investors can invest in his most popular company, Tesla (TSLA). Turning to Wall Street, analysts have a Hold consensus rating on TSLA stock based on 15 Buys, 13 Holds, and nine Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average TSLA price target of $365.31 per share implies 14.1% downside risk.
