xAI has raised US$20bn in one of the largest private company funding rounds of all time, as the Elon Musk-backed AI company races to secure financing to rapidly scale up its computing capacity in a bid to make its controversial Grok model into one of the leading AI engines.
The company, which is less than three years old, already operates the world’s most powerful supercomputer: the Colossus facility just outside Memphis, Tennessee. But in recent months it has committed to developing two other facilities as it strives to compete with rivals including OpenAI and Alphabet.
Its latest funding round comes at a critical time, giving xAI the financial resources it needs to stay in the artificial intelligence race as rivals up their spending. The Series E round, which is split between undisclosed equity and debt tranches, is one of the largest private fundraising rounds ever seen.
“Congrats to the xAI team and thank you to investors for your faith in our company,” Musk posted on X following the announcement, which came against the backdrop of widespread anger and regulatory threats against Grok after it was found to be generating sexualised images of children.
The deal was upsized from an initial US$15bn target and values xAI at about US$230bn, double its valuation a year ago. Valor Equity Partners, a fund led by Antonio Gracias – a close friend of Musk who worked alongside him last year at the US Department of Government Efficiency – was a lead investor.
Valor is a key financial backer of xAI in its race to become a dominant AI player. It participated in previous funding rounds and is in the process of raising up to US$20bn to finance the purchase of chips to be leased back to xAI, a form of off-balance-sheet financing used by other AI firms.
Following the xAI announcement, alternative asset manager Apollo said it had separately struck a deal to inject US$3.5bn into a new venture run by Valor – to be called Valor Compute Infrastructure – to fund US$5.4bn of data centre infrastructure that will be leased to xAI. Chipmaker Nvidia is a partner in the deal.
“VCI is an extension of our continued service as a firm to xAI,” said Gracias. “The fund provides investors with the opportunity to invest in critical artificial intelligence compute infrastructure with quarterly cash distributions and upside through ownership of the compute assets.”
Fidelity, Qatar
Other participants in the xAI round included private capital firm Stepstone, fund manager Fidelity and investment firm Baron Capital. There was participation from the Gulf region, with sovereign wealth fund Qatar Investment Authority and Emirati state-owned investment firm MGX also investing.
Nvidia and networking equipment manufacturer Cisco were also named as “strategic investors” in the round. Nvidia is the primary supplier of chips to xAI at its Colossus facility. Its participation will fuel criticisms of circular financing that have also been levelled at OpenAI.
“This financing will accelerate our world-leading infrastructure buildout, enable the rapid development and deployment of transformative AI products reaching billions of users, and fuel groundbreaking research advancing xAI's core mission: Understanding the Universe,” xAI said.
xAI was founded in 2023, just months after OpenAI’s runaway launch of ChatGPT. It sought to differentiate Grok from more established AI models by promising “to answer questions with a bit of wit” and by training the model on real-time data from X, the social media platform owned by Musk.
But Grok has been mired in controversy since then. Last year, it produced antisemitic content and praised Adolf Hitler, forcing xAI to temporarily disable the product. In recent days, it has been criticised for allowing users to produce non‑consensual deepfakes and sexualised images of minors.
Still, that hasn’t stopped it from generating funds. It has raised at least US$42bn over the past three years including the latest deal – including most recently a US$10bn raise last June split equally between equity and debt. It raised US$12bn from two rounds the previous year.
Morgan Stanley led the debt portion of the US$10bn raise in June. The deal included a US$3bn bond with a five-year maturity and a 12.5% coupon that was privately placed, as well as a US$1bn term loan at 12.50% and a US$1bn term loan B at SOFR plus 725bp, both at five-year tenors.
Barclays, MUFG and UBS were also involved in the June financing. The high interest rates attached to the deals illustrate how expensive it is for standalone AI companies like xAI to borrow for their funding needs – unlike rivals like Alphabet, Meta Platforms and Amazon, which can borrow at less than half the price.
OpenAI raised US$40bn of equity last March from Softbank, the Japanese investment group, in what was the largest private company funding rounds ever seen, valuing OpenAI at US$300bn. Rival Anthropic raised US$13bn in a Series F funding round in September at a US$183bn valuation.