Billionaire Elon Musk-led artificial intelligence startup xAI (PC:XAIIQ) is planning a massive $20 billion funding round, with Nvidia (NVDA) set to play a key role. Chip giant Nvidia intends to invest up to $2 billion in the equity portion of a special purpose vehicle (SPV) created for the fundraising. According to Bloomberg, the SPV will raise $12.5 billion in debt and $7.5 billion in equity.
Elevate Your Investing Strategy:
- Take advantage of TipRanks Premium at 50% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence.
The funding structure is unique as it will be backed by Nvidia’s GPUs (graphics processing units). The SPV will buy processors from Nvidia, which xAI will then rent for five years to support its Colossus 2 project. Skeptics are already questioning the “circular” nature of the deal, since Nvidia will invest and then sell its own GPUs to the SPV.
xAI has developed its own AI model, Grok, providing real-time, conversational answers and insights. Grok competes directly with OpenAI’s ChatGPT, Meta’s (META) Llama, and Google’s (GOOGL) Gemini, among others.
Nvidia-xAI Eye an Unusual Partnership
xAI has increased its capital-raise plan from $10 billion to $20 billion. The funds will focus on xAI’s largest data center facility in Memphis, Colossus 2. Investors backing the latest funding include Apollo Global Management (APO) and Diameter Capital Partners who are participating in the debt financing. Meanwhile, Valor Capital is leading the equity portion of the transaction.
Musk’s xAI is urgently seeking more funding to meet its ambitious AI goals. The company has already raised about $10 billion in equity and debt earlier this year but still needs billions more, according to the report. xAI has been spending around $1 billion each month.
Notably, Musk has also asked his other companies, including SpaceX, to invest in xAI. Tesla (TSLA) investors will vote later this year on whether the EV maker should invest. Musk views AI as critical to his future products such as self-driving cars and autonomous robots.
Why Is Nvidia Investing in xAI?
This investment is part of Nvidia’s broader plan to boost AI adoption among its customers, following its recent $100 billion commitment to OpenAI. Nvidia aims to use its money to speed up AI adoption. Nvidia CFO Colette Kress said in September that the company might buy back shares or make acquisitions, but its main goal is to help other companies adopt AI faster.
Helping other companies adopt AI faster will in turn benefit Nvidia in several ways. By enabling wider AI deployment, Nvidia drives greater demand for its GPUs, data center products, and software platforms like CUDA and DGX. This expands Nvidia’s customer base and strengthens its leadership in the AI ecosystem.
Nvidia has also taken a $5 billion equity stake in chipmaker Intel (INTC) and invested in data center player CoreWeave’s (CRWV) initial public offering earlier this year.
Is NVDA Stock a Buy, Hold, or Sell?
On TipRanks, NVDA stock has a Strong Buy consensus rating based on 35 Buys, two Holds, and one Sell rating. The average Nvidia price target of $218.14 implies 17.9% upside potential from current levels. Year-to-date, NVDA stock has surged more than 37%.
