xAI, Elon Musk's AI company, is seeking billions in funding to build out AI infrastructure.

Following a boost in subscription growth from xAI's Grok 4 chatbot offerings, Elon Musk's artificial intelligence company is attempting to secure $12 billion in funding from private investors to jump ahead of industry competitors like OpenAI, Meta, Microsoft, Google and Anthropic. According to a report from The Wall Street Journal, Antonio Gracias and his investment firm Valor Equity Partners are in talks with a group of lenders to raise the capital for xAI. The money would be used "to buy a massive supply of advanced Nvidia chips that would be leased to xAI for a new jumbo-sized data center meant to help train and power the AI chatbot Grok."

Currently, xAI has one giant data center based in Memphis, Tennessee, with plans to build a new one—"Colossus 2"—with the money it hopes to raise from Valor. This expansion reflects the enormous costs of training competitive AI models, which require billions of dollars in investment. xAI is competing with tech giants also committed to building data centers across the globe, including Meta, which announced plans to construct a series of multi-gigawatt centers in the United States slated to be operational sometime next year. Musk is making strategic moves to disperse funds, with SpaceX investing $2 billion into xAI earlier this month, while the company is also investing its current funds into revenue-boosting features, including NSFW AI companions powered by Grok 4, which xAI is paying engineers $440,000 salaries to develop.

xAI faces a significant monetary disadvantage compared to OpenAI and Anthropic, which have partnered with existing cloud-computing giants willing to absorb costs. By building its own AI infrastructure, xAI is expected to burn around $13 billion in cash this year. Historically, Valor has invested in other Musk-owned enterprises, including SpaceX, Tesla, SolarCity, The Boring Company, and Neuralink. If the firm is successful in raising billions for xAI, it would help the AI company reach its goal of powering Grok with one million Nvidia chips, which would far overpower other chatbots. For comparison, Meta's AI endeavors are powered by 350,000 chips, while OpenAI has around 200,000 chips in use.

Potential investors are sharing concerns about xAI's $5 billion in corporate debt, which carries a 12.5% yield. However, investors would be able to rent out the Memphis datacenter to competing AI companies if xAI defaults on payments, mitigating some of the risk associated with the investment.