Elon Musk's xAI may be the next AI company to do a creative financing deal involving Nvidia

By Emily Bary

xAI reportedly is looking to raise $20 billion - with Nvidia as one of the investors

Elon Musk's xAI operates the Grok model that competes against OpenAI's ChatGPT.

Artificial-intelligence companies have gotten creative as they look to finance the chip purchases seemingly required to keep pace in the technological arms race. A new report suggests Elon Musk's xAI might soon join the crowd.

Bloomberg News reported late Tuesday that xAI, which operates the Grok model, was planning to scale up its fundraising ambitions in the form of a $20 billion deal with an unusual structure. The report said the financing "includes equity and debt in a special-purpose vehicle" that will purchase Nvidia Corp. (NVDA) chips and then rent them to the AI startup.

At the heart of it all is Nvidia, and not just because of the graphics processing units. Nvidia could also get involved in the equity portion of the deal, investing up to $2 billion, according to the report.

Nvidia declined to comment, while xAI didn't immediately return a request for comment. Musk said on X in September that the company wasn't raising capital.

Such a deal, were it to take place as reported, would likely appear to some as another example of "circular" financing in the AI era, since Nvidia would be investing in a special-purpose vehicle associated with xAI, which would be buying chips from Nvidia.

Nvidia has shown a general willingness recently to make deals with industry players. The company recently said it would invest up to $100 billion in OpenAI, which intends to build and deploy at least 10 gigawatts of data centers using Nvidia hardware. Nvidia also took a $5 billion stake in Intel Corp. (INTC), which has admittedly been a lesser player thus far in the AI race. The company invested in CoreWeave Inc.'s (CRWV) initial public offering earlier this year - a move that's paid off so far, on paper.

To critics, the "circular" nature of some AI deals is a potentially worrisome sign of froth in the technology market. But defenders chafe at the characterization, saying Nvidia has the cash to spend and that it's within the company's interests to lift up members of its ecosystem.

See also: Nvidia's OpenAI deal adds to a brewing concern. But will that actually hurt the stock?

Meanwhile, AI players have been relentless in striking deals for computing capacity and hardware - and increasingly, they've needed new ways to finance all that spending. After reportedly inking a multiyear cloud arrangement with OpenAI last month, Oracle Corp. (ORCL) recently completed an $18 billion bond deal that included some 40-year maturities.

Don't miss: Oracle's stock surged on billions in new cloud contracts. Can it fund its AI promise?

Bloomberg's report said the xAI financing could include $12.5 billion in debt and $7.5 billion in equity, calling the arrangement "unique" as the deal would be "backed by the GPUs as opposed to the company."

-Emily Bary

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10-07-25 2248ET