Burning 1 billion every month, Musk's xAI raises another 10 billion dollars in "equity + debt"

As tech giants compete to bet on the future of AI, Elon Musk's xAI finds itself in a financial paradox: it has successfully raised a massive $10 billion, but behind this is a "burning money" black hole of up to $1 billion per month, far outpacing competitors like OpenAI. On July 1, Morgan Stanley announced on X platform that Musk's artificial intelligence company xAI has completed a new round of financing totaling $10 billion, which includes $5 billion in debt financing and $5 billion in equity investment. This "equity + debt" combination financing method aims to reduce overall capital costs and significantly expand the available capital pool. The investment bank acted as an advisor for xAI's $5 billion debt financing and stated that the debt financing was oversubscribed, attracting participation from well-known global debt investors. Morgan Stanley noted that the proceeds from the financing will be used to support xAI's ongoing development of cutting-edge AI solutions, including the construction of one of the world's largest data centers and the development of its flagship product, the Grok platform. Grok is positioned as a competitor to ChatGPT and is the core product for xAI's entry into the generative AI market. The Information cited informed sources revealing that the debt financing specifically includes: $3 billion in bonds with a yield of 12.5%, $1 billion in fixed-rate term loans with an interest rate of 12.5%, and $1 billion in term loans with a benchmark rate plus 7.25 percentage points, the latter issued at a discount price of 96 cents. This marks xAI's second large-scale financing in a short period. According to previous reports, the company just completed a $6 billion equity financing last December, with investors including Andreessen Horowitz, BlackRock, Lightspeed Venture Partners, and MGX among other well-known institutions. In the gap between the two rounds of financing, xAI also acquired Musk's social media company X through an all-stock transaction, with the merged company's valuation reaching $113 billion. The intensive financing and acquisition activities reflect xAI's enormous capital needs in AI infrastructure construction and product development. xAI Burns $1 Billion Monthly, Far Exceeding Revenue Despite securing $10 billion in financing, xAI's financial predicament remains prominent. Previously mentioned by Wall Street Journal, xAI's monthly cash burn reaches $1 billion, primarily used for building advanced AI models and infrastructure, while revenue remains limited. xAI expects to generate only $500 million in revenue this year. In contrast, competitor OpenAI anticipates revenue of $12.7 billion in 2024. Moreover, xAI's financing pace barely keeps up with its expenditures—after raising $14 billion in equity financing in 2023, only $4 billion remained by the first quarter of this year, with expectations to burn through it by the second quarter. Relevant sources indicated that xAI plans to spend more than half of those funds within the next three months The company expects to consume approximately $13 billion in funds for the entire year of 2025 and plans to refinance $6.4 billion in 2026. At the same time, xAI expects to achieve profitability by 2027. According to previous media reports, OpenAI aims to achieve positive cash flow by 2029. These growth forecasts, combined with Musk's star power and political influence, make xAI still attractive in the financing market. Even though Musk's relationship with U.S. President Trump has recently deteriorated, investors remain attracted. The company revealed to investors that as of the end of the first quarter of 2025, xAI's valuation has risen from $51 billion at the end of 2024 to $80 billion. Investors include Andreessen Horowitz, Sequoia Capital, VY Capital, and others