Musk’s xAI Is Trying to Borrow $5 Billion While His Relationship With Trump Blows Up
Bankers worry the fight will affect an ongoing deal to raise money for xAI’s data centers
Key Points
- Elon Musk’s fight with President Trump has bankers worried about xAI’s ongoing deal to raise $5 billion.
- Morgan Stanley is hoping to sell the debt at around 100 cents on the dollar.
- Morgan Stanley may need to offer discounts or higher interest rates due to the Musk-Trump spat affecting X’s debt value.
On Thursday afternoon, Morgan Stanley had gathered a group of executives from xAI, Elon Musk’s artificial-intelligence company, to pitch Wall Street on why they should lend billions of dollars to a cash-burning, high-growth startup.
During the call, the xAI executives spoke about the company’s data centers and Grok, its AI-powered chatbot. While they presented, investors were following Musk’s attacks on social media against President Trump. That afternoon, Musk accused the president of covering up his ties to disgraced financier Jeffrey Epstein and for being ungrateful for his help in winning the election. Investors followed the fight on their screens as the xAI executives talked about their hopes for the company’s future.
Now, bankers worry the blown-up relationship between Musk and Trump will affect xAI’s $5 billion debt deal.
For nearly 2½ years, Wall Street didn’t know what to make of Musk’s control of X, the social-media site previously called Twitter. Musk’s takeover of the company spurred an exodus of advertisers, tanking its main source of revenue. Its uncertain future made it impossible for banks to sell the loans they had made to finance Musk’s buyout. Then Musk’s alliance with Trump during the presidential campaign last year changed everything.
After Trump was elected, investors were hungry for any type of trade that would benefit from the new administration’s policies. As Musk slashed expenses and began to lure back advertisers, X’s outlook began to brighten, helped further by a stake that it held in xAI that had surged in value.
That created an opening for the lenders. Morgan Stanley was able to sell some $11 billion of X debt between January and April without incurring major losses. X’s recently announced merger with xAI was another selling point, given the latter’s enormous growth potential.
Investors are now weighing how the social-media and AI company could be affected if the White House points its cannons at Musk’s sprawling business empire. Tesla’s stock is down around 7% since midday Thursday, and Trump has threatened to eliminate government subsidies and contracts for Musk’s businesses.
The spat is the latest headache for Morgan Stanley, which has been caught off guard by Musk’s battles before. The bank is in the middle of selling around $5 billion in debt for xAI, which would be used to help build out data centers that the company needs to train Grok, its large language model that draws on real-time platforms like X to answer users’ questions.
Morgan Stanley is hoping to sell the debt at around 100 cents on the dollar. But after the Musk-Trump fight, X’s outstanding debt traded down several points Thursday at around 95 cents on the dollar. As of Friday, the loans had moved closer to 97 cents, a trader said.
Because of the slide in prices, investors say they expect Morgan Stanley may need to offer a discount on the xAI bonds, a hike in the interest rate or other sweeteners to close the deal.
Morgan Stanley had originally hoped to sell some of the loans and bonds with a 12% interest rate, a sign the debt carries a high level of risk. The deal isn’t scheduled to close until later in the month.
xAI is also arranging the sale of $300 million in stock, in a transaction that values the company at $113 billion, people familiar with the matter said.
On Thursday’s call, Morgan Stanley shared financials with investors that showed xAI is rapidly burning through cash. The company reported a loss of $341 million before interest, taxes, depreciation and amortization for the first quarter, but predicted that it will break even in a matter of years.
Bankers are worried market turmoil could also trouble the debt sale. So far, buyers who showed initial interest haven’t backed off, people familiar with the matter said. Indeed, demand for both the debt and the equity sales has actually increased since Thursday, one adviser to the company said.
xAI is also arranging the sale of $300 million in stock, in a transaction that values the company at $113 billion, people familiar with the matter said.
On Thursday’s call, Morgan Stanley shared financials with investors that showed xAI is rapidly burning through cash. The company reported a loss of $341 million before interest, taxes, depreciation and amortization for the first quarter, but predicted that it will break even in a matter of years.
Bankers are worried market turmoil could also trouble the debt sale. So far, buyers who showed initial interest haven’t backed off, people familiar with the matter said. Indeed, demand for both the debt and the equity sales has actually increased since Thursday, one adviser to the company said.