Elon Musk’s AI startup xAI in talks to raise $4.3B in equity funding on top of $5B debt deal amid soaring AI costs

Just weeks after reports surfaced that Elon Musk’s xAI was looking to raise $20 billion at a $120 billion valuation, the startup is back in the headlines with another funding push. This time, it’s eyeing a $4.3 billion equity investment, Bloomberg reported Tuesday.

The fresh raise would sit on top of an ongoing $5 billion debt round, with commitments reportedly due Tuesday. Bloomberg cited information shared with investors and a person familiar with the matter.

“Elon Musk’s artificial intelligence startup xAI is in talks to raise $4.3 billion through an equity investment on top of the $5 billion it has recently been trying to borrow from debt investors, according to information the company shared with investors who asked not to be identified because it is private,” Bloomberg reported.

Since its inception two years ago, xAI has already brought in $14 billion through equity fundraising. That figure doesn’t include the $5 billion in debt it’s currently seeking. Morgan Stanley is running point on the debt sale but declined to comment.

xAI’s cash burn appears to be catching up with it. Building and running advanced AI systems isn’t cheap—between the specialized hardware, massive compute resources, and talent wars, the costs pile up fast. According to the report, xAI has already gone through most of its previously raised capital.

There might be a little breathing room coming. One of xAI’s manufacturers is reportedly offering a $650 million rebate that could help cut down some of those costs.

The company, best known for its Grok chatbot, was valued at $80 billion at the end of Q1 this year, a jump from $51 billion at the close of 2024. It also acquired X earlier this year, giving it a social platform to plug its AI systems into.

Meanwhile, OpenAI—Musk’s former project—is working on a much bigger round. The company is looking to raise as much as $40 billion at a $300 billion valuation, with SoftBank expected to lead the deal.

Launched by Musk in July 2023, xAI set out with a mission to explore the universe’s deepest mysteries. The xAI team includes top talent from companies like Google DeepMind, OpenAI, Microsoft Research, and Tesla—people who have driven advancements such as DeepMind’s AlphaCode and OpenAI’s GPT-3.5 and GPT-4. Musk appears to be positioning xAI as a formidable player in the AI space, aiming to compete with giants like OpenAI, Google, and Anthropic, each known for their flagship AI models.

Although Musk co-founded OpenAI in 2015, he left the board in 2018 and has since voiced skepticism about Big Tech’s direction in AI, citing concerns about potential censorship. Musk’s recent AI vision includes a “truth-focused” AI, designed to counter offerings like Google’s Bard and Microsoft’s Bing AI by exploring fundamental truths about the universe.