xAI burns $1B per month as Musk seeks $9.3B funding
What's the story
Elon Musk's artificial intelligence (AI) venture, xAI, is burning through a staggering $1 billion each month.
The financial strain highlights the massive costs of developing advanced AI models and the slow revenue generation at xAI.
To bridge this gap, the company is looking to raise $9.3 billion in debt and equity financing.
Funding plans
xAI expects to burn through $13 billion over 2025
While still waiting for the funds to come, xAI plans to spend over half of it in the next three months.
The company expects to burn through some $13 billion over 2025, according to its levered cash flow.
This is largely due to the high costs associated with building server farms and purchasing specialized computer chips for training advanced AI models like Grok and ChatGPT.
Market competition
xAI's revenue generation lag behind competitors
Unlike its competitors OpenAI and Anthropic, xAI has struggled to develop revenue streams at the same pace.
The company expects revenues of only $500 million this year, which will rise to over $2 billion next year.
Despite these challenges, Musk's wealth and willingness to invest in futuristic projects have kept investor interest alive in xAI.
Strategic edge
xAI is building its own infrastructure
xAI is investing heavily in its own infrastructure, unlike some competitors who rent chips and server space.
The company also has direct access through Musk's social media platform, X, which previously purchased a large amount of high-powered computer chips.
After merging with X, xAI hopes to train its models on the platform's vast archives instead of paying for datasets like other AI firms.
Financial trajectory
Breakdown of funding rounds and capital raises
Since its inception in 2023 until June this year, xAI has raised $14 billion in equity. However, only $4 billion remained at the start of Q1 2024.
Now, it is finalizing a new equity funding round worth $4.3 billion and plans another capital raise of $6.4 billion next year on top of the previously reported $5 billion debt being arranged by Morgan Stanley for data center development costs.