Apollo Nears $3 Billion Chip-Funding Deal Tied to XAI
The investment is Apollo’s second in a chip vehicle for xAI, which merged with SpaceX.
The Takeaway
- Apollo nears $3.4 billion lending deal for Nvidia chips leased to xAI.
- Funding aims to ease xAI’s cash burn for massive AI data centers.
- xAI burned over $1 billion monthly through last fall.
Apollo Global Management, one of Wall Street’s biggest private credit firms, is nearing a deal to lend about $3.4 billion to an investment vehicle that will purchase Nvidia chips and lease them to Elon Musk’s xAI, which just merged with SpaceX, said a person with knowledge of the deal.
The deal would be Apollo’s second big investment in a vehicle to lease chips to xAI, following a similar $3.5 billion loan it made in November. Apollo is also planning to invest in the equity of the new vehicle, which is aiming to raise $5.3 billion in equity and debt, the person said.
The investment, which could be finalized as soon as this week, is designed to relieve some of the financial pressures on xAI as Musk lays out grand ambitions to build the world’s biggest data centers for developing AI models. Valor Equity Partners, a longtime investor in Musk’s companies, is arranging the deal.
The vehicle is part of a larger effort by Valor to raise $20 billion in debt and equity for AI chips it will install in xAI data centers.
Apollo agreed to the deal before Musk decided to merge xAI with SpaceX, effectively bolting his cash-burning AI company and social media business onto his crown jewel, the space company. The combined company is preparing for an initial public offering that aims to raise $50 billion. Bonds xAI issued last year have rallied following news of the merger, pushing down yields.
Through last fall, xAI was burning through more than $1 billion a month, according to financial documents for the first nine months of 2025. The company spent $7.8 billion on property and equipment purchases in that period as it raced to build massive data centers for developing its Grok series of AI models.
Its closest startup competitors, Anthropic and OpenAI, have also spent heavily on research and computing resources, but both are generating billions of dollars in revenue from their AI products. Musk’s AI company recorded nearly $210 million in revenue during the first nine months of 2025.
Musk did not face too much friction in raising money for xAI. The company said last month it had raised $20 billion from investors in a separate fundraising, $5 billion more than it initially expected. That’s on top of about $19 billion in previous rounds of fundraising, according to documents viewed by The Information.
However, he has increasingly turned to the debt markets and his most loyal backers to fund his ambitious plans to build the world’s largest AI data centers. In the summer, he tapped Morgan Stanley to raise about $5 billion in debt carrying 12.5% interest rates.
Valor has a long history of backing Musk’s companies. Its CEO, Antonio Gracias, serves on the board of SpaceX, according to a biography on the firm’s website, and has described himself as Musk’s close friend. In 2008, Valor arranged $40 million in bridge financing to keep Musk’s electric vehicle company, Tesla, afloat.
In the past, Valor partners, including Gracias, have embedded themselves inside Musk’s companies to provide expertise during pivotal moments, including at Tesla during a production crisis and at Twitter, later renamed X, after Musk restructured it.
Apollo, which manages more than $900 billion in assets, has been ramping up efforts to finance AI chips and data centers. The firm last year purchased Texas-based Stream Data Centers and has been exploring ways to invest money from its life insurance arm in computing facilities for large tech companies.
Apollo often steps in to back companies that are struggling to raise cash. It usually demands high returns and strict protections against losses. Christopher Lahoud, an Apollo partner who led a deal in 2021 to rescue rental car company Hertz from bankruptcy, is overseeing the firm’s xAI investment.
The Apollo debt for the vehicle is expected to carry an interest rate of 9.5%, said the person with knowledge of the deal. Apollo is also planning to sell a portion of the debt to other firms and has been helping to sell equity in the vehicle, the person said. An Apollo spokesperson declined to comment.
In a pitch to equity investors, Valor projected they could earn annual returns greater than 22% if the vehicle is able to sell the chips and data center equipment for one-quarter their purchase price five years from now, a scenario it presented as a “base case.”
Investors could make annual returns of almost 17% in the firm’s “downside case”—that is, if the vehicle is able to sell the chips to refiners for the value of their raw materials, including gold and copper, according to the documents viewed by The Information. Investors could make similar returns if xAI renewed its lease for another three years at a discount ranging from 40% to 70%, the documents said.