NVIDIA is teaming up with Elon Musk’s AI startup xAI in a groundbreaking $20 billion chip agreement to compete with rivals like OpenAI and Anthropic. The deal places NVIDIA’s growing role as the backbone of the global AI race. Experts believe that the partnership could redefine the AI industry and challenge OpenAI’s dominance.
Elon Musk’s artificial intelligence startup, xAI, raised more financing than initially planned, with backers including NVIDIA Corporation, bringing the total to $20 billion, according to reports.
Bloomberg reported that the financing includes both equity and debt in a special purpose vehicle that will purchase NVIDIA processors and rent them to xAI for use in its Colossus 2 project, the largest data center site located in Memphis.
NVIDIA is expected to invest around $2 billion in the equity portion of the transaction, a strategy by the chipmaker to accelerate its customers’ AI investments. XAI’s fundraising effort, previously reported by Bloomberg at half the amount, may continue to grow.
XAI’s financing would be split between approximately $7.5 billion of equity and as much as $12.5 billion of debt in the SPV, according to reports.
“The vehicle will be used to buy NVIDIA processors, and Musk’s artificial intelligence startup would then rent the chips out for five years, allowing Wall Street financiers to recoup their investment. The unique deal structure, backed by the GPUs as opposed to the company, could provide a playbook for tech firms looking to decrease debt exposure,” mentioned the Bloomberg report.
NVIDIA’s leaders have stated they will use the company’s growing financial strength to speed up the deployment of artificial intelligence across the industry. However, Musk posted on X in September that the company was “not raising any capital right now.”
As per previous reports, Apollo Global Management and Diameter Capital Partners are participating in the debt raise, while Valor Capital is leading the equity portion of the deal. Meanwhile, Apollo is a major investor in Musk’s AI venture.
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Officer Colette Kress told the audience at a Goldman Sachs conference that NVIDIA will repurchase stock and make strategic acquisitions where possible. Still, the priority is to use cash to help other companies adopt AI more quickly.
The AI sector has witnessed several multi-million-dollar deals in recent times. Earlier this week, OpenAI partnered with Advanced Micro Devices Inc. (AMD) to use chips for multiple years.
Meta Platforms Inc. has also signed a $29 billion financing package for data centers. Another addition to the list is Oracle Corporation, which raised around $38 billion in a debt package for its infrastructure.
As NVIDIA and xAI reshape the AI space, tech enthusiasts are eagerly watching to see how these billion-dollar deals unfold and which giant endures in the ever-intensifying competition for supremacy.