AI: Elon Musk's high volatility AI ventures. RTZ #756
We’ve discussed Elon Musk’s lofty ambitions for AI via Grok and xAI across his companies for some time now.
Ranging from X/Twitter now merged into xAI as one big private company, to SpaceX/Spacelink as another even bigger private company. Then of course to the biggest one. Tesla, worth over a trillion dollars in the public market on any given day. Volatility of +/- $250 billion or so notwithstanding at any given point in time. Especially with the current market enthusiasm around AI ‘robotaxis’ and Optimus humanoid robots.
Even though Musk is regularly referred to as the ‘richest man in the world’, most of his companies are not gushing cash like his AI competitors in the ‘Mag 7’, certainly not at the scale of Google, Meta, Apple, Amazon and Nvidia. And of course Mag 7 1/2, OpenAI, which has its Stargate AI Infrastructure ambitions away from Microsoft, is also in a position similar to Elon’s companies.
Both of them need to raise billions in equity and debt via investors public/private, institutional/sovereign. So xAI in particular needs mnore capital. Especially in his rivalry with OpenAI and its founder/CEO Sam Altman
So it’s not surprising that Elon is in the process of raising more equity and debt funds to scale up his xAI/Grok LLM AI ventures, from an AI Infrastructure perspective. Especially now since he’s stepped back from his government activities with the current administration.
And he needs additional capital to fund AI Talent acquisitions, which as noted yesterday, is in a white-hot phase with Meta in particular upping the ante for all in particular.
Bloomberg explains Elon’s fund raising aspirations and plans in “Musk’s xAI Burns Through $1 Billion a Month as Costs Pile Up”:
“Elon Musk’s AI startup xAI is burning through $1 billion a month, with expected losses of $13 billion in 2025, due to the high costs of building advanced AI models.”
“To cover the gap, xAI is trying to raise $9.3 billion in debt and equity, with plans to spend over half of it in the next three months, and expects to be profitable by 2027.”
xAI’s revenues are expected to be $500 million this year, rising to over $2 billion next year, but the company is struggling to develop revenue streams at the same rate as its competitors, such as OpenAI.”
The details are worth delving into:
“Elon Musk’s artificial intelligence startup xAI is burning through $1 billion a month as the cost of building its advanced AI models races ahead of the limited revenues, according to people briefed on the company’s financials.”
“The rate at which the company is bleeding cash provides a stark illustration of the unprecedented financial demands of the artificial intelligence industry, particularly at xAI, where revenues have been slow to materialize.”
“To cover the gap, Musk’s startup is currently trying to raise $9.3 billion in debt and equity, according to people briefed on the deal terms, who asked not to be identified because the information is private. But even before the money is in the bank, the company has plans to spend more than half of it in just the next three months, the people said.”
The numbers are super-sized, especially on the AI Data Center front:
“Over the course of 2025, xAI, which is responsible for the AI-powered chatbot Grok, expects to burn through about $13 billion, as reflected in the company’s levered cash flow, according to details shared with investors. As a result, its prolific fundraising efforts are just barely keeping pace with expenses, the people added.”
And a rebuttal from the company:
“A spokesperson for the company declined to comment. However, Musk said “Bloomberg is talking nonsense” in a response to a post on his social media platform X that referenced Bloomberg’s article.”
It’s an industry wide race to an unknown AI capex future:
“The losses are due, in part, to the huge costs that all AI companies face as they build the server farms and buy the specialized computer chips that are needed to train advanced AI models like Grok and ChatGPT. Carlyle Group Inc. estimates that over $1.8 trillion of capital will be deployed by 2030 to meet that demand to build out AI infrastructure, Chief Executive Officer Harvey Schwartz wrote in a shareholder letter.”
“Model builders will look to raise debt and they’re going to burn lots and lots of cash,” said Jordan Chalfin, senior analyst and head of technology at CreditSights. “The space is very competitive and they are battling for technical supremacy.”
More here on that front:
It’s covered in more detail in Wall Street’s Elites Are Piling Into a Massive AI Gamble”.
And the AI revenue pace is daunting:
“But Musk’s entrant in the AI race has struggled to develop revenue streams at the same rate as some of its direct competitors, like OpenAI and Anthropic.”
“While almost none of these companies offer public figures on their finances, Bloomberg has previously reported that OpenAI, the creator of ChatGPT, is expecting to bring in revenues of $12.7 billion this year. At xAI, revenues are expected to be just $500 million this year, rising to north of $2 billion next year, investors were recently told.”
But Musk is his own unique wild card:
“What xAI has on its side is a CEO, Musk, who is the richest man in the world, and one who has shown a willingness to spend his fortune on huge, futuristic projects long before they start generating money. Back in 2017, Musk’s biggest company, Tesla Inc. was burning through $1 billion a quarter to pay for the production of its Model 3 car, Bloomberg reported at the time. SpaceX, meanwhile, sustained years of steady losses as it pushed toward its long-term goal of interplanetary exploration. Even against this backdrop, though, the huge losses at xAI stand out.”
“Musk’s team at xAI, which is racing to develop AI that can compete with humans, believes that they have advantages that will eventually allow them to catch up with peers. While some competitors rent chips and server space, xAI is paying for much of the infrastructure itself and getting direct access through X, which previously bought a significant stockpile of the most coveted and high powered computer chips. Musk has said that he expects xAI will continue buying more chips.”
X/Twitter is a key data ingredient for Grok of course, as well as being an important distribution channel for the service with hundreds of millions of users.
“X Factor”
“After recently merging with X, Musk’s AI executives are also hopeful that they will be able to train the company’s models on the social media network’s copious and constantly-refreshed archives, rather than paying for data sets like other AI companies.”
And this arrangement is a plus for long-time Elon Musk investors:
“These potential advantages have led xAI to optimistically project that it will be profitable by 2027, people familiar with the matter said. OpenAI expects to be cashflow positive by 2029, Bloomberg previously reported.”
“These projections, along with Musk’s celebrity status and political power, have been enough to win over many investors, especially before the recent breakdown in the relationship between Musk and President Donald Trump. Potential xAI investors were told that the company’s valuation grew to $80 billion at the end of the first quarter, up from $51 billion at the end of 2024. Investors have included Andreessen Horowitz, Sequoia Capital and VY Capital.”
“For now, though, xAI is racing to raise enough money to keep up with its prodigious expenditures. Between its founding in 2023 and June of this year, xAI raised $14 billion of equity, people briefed on the financials said. Of that, just $4 billion was left at the beginning of the first quarter, and the company expected to spend almost all of that remaining money in the second quarter, the people said.”
Thus the current deal, with all its jagged edges:
“The company is now finalizing $4.3 billion in new equity funding, and it already has plans to raise another $6.4 billion of capital next year, the company has told investors. And that is on top of the $5 billion in debt that Bloomberg has previously reported Morgan Stanley is helping it raise. The corporate debt is expected to help pay for xAI’s data center development, the people said. Other companies have decided to do project financing instead.”
“The company is also expecting to get a bit of help from a $650 million rebate from one of its manufacturers, it told investors this week.”
“There were early signs that investors were hesitant to loan the company money at the proposed terms, Bloomberg has reported. The company gave select investors more detailed financial information on Monday in response to questions it had faced during the fundraising process, people familiar with the negotiations said. But the deal has attracted more interest since the company changed some of the deal terms — to be more investor friendly — and finalized the equity fundraising.”
Elon Musk is the one LLM AI option in this AI Tech Wave with the highest volatility in either direction. Thus his moves in any direction remain worth tracking and watching. Stay tuned.
(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)
