Elon Musk’s artificial intelligence startup, xAI, is making headlines again, this time for its bold attempt to raise $5 billion in debt financing through Morgan Stanley. The move comes amid intense political tensions involving Donald Trump, rising regulatory uncertainty, and heightened cryptocurrency market volatility.
Despite the high-risk climate, Musk is pushing forward with a dual fundraising strategy to support xAI’s aggressive growth plans.
Morgan Stanley’s “Best Efforts” Loan Deal
Morgan Stanley is structuring the xAI debt package as a “best efforts” deal, meaning it won’t fully commit to underwriting the loans, a sign of market caution. The main debt component includes a floating-rate term loan B, priced at 97 cents on the dollar with a 700 basis point spread over SOFR (Secured Overnight Financing Rate). This type of pricing indicates a higher risk profile, often used when investor confidence is shaky.
In addition to the floating-rate option, xAI is also offering a hybrid financing alternative that carries a 12% fixed coupon rate, appealing to investors who prefer steady returns in an uncertain market.
An insider familiar with the deal summed it up:
“What has shifted in just a few months is Musk’s political leverage.”
Trump Feud Fuels Market Anxiety
The financing move follows a highly publicised fallout between Musk and former U.S. President Donald Trump. Their ongoing feud has spilled over into the market, shaking investor confidence. At one point during the tension, Tesla shares dropped 17%, reflecting how political drama can ripple across Musk’s empire.
Tesla Stock Analyst Price Projection – Source: TipRanks
The Trump feud is more than just a PR issue, it’s reportedly causing concerns in Washington, with talk of federal contract cancellations and cutbacks to public funding linked to Musk-affiliated companies. This political backdrop is shaping how financial institutions like Morgan Stanley approach deals involving Musk.
Regulatory Risks and Crypto Volatility
The xAI loans are being negotiated in an environment marked by increasing regulatory scrutiny, especially around tech and AI ventures. Banks and investors are cautious, and the decision to avoid fully underwriting the loan shows how much uncertainty hangs over the deal.
On top of that, the cryptocurrency market’s instability adds another layer of risk. Musk, known for his influence in the crypto world, faces heightened exposure, making xAI’s funding process even more complex.
Ambitious Equity Goals Despite Headwinds
Alongside the $5 billion in loans, xAI is also pursuing a massive $20 billion equity raise. Current valuations for the company range between $120 billion and $200 billion, showing just how bullish Musk is on the AI sector, despite the headwinds.
Tesla’s Market Value Above $1 trillion – Source: Google Finance
Interestingly, even as political drama swirls, Tesla’s market cap recently climbed back above $1 trillion, driven in part by Musk’s conciliatory social media posts. This rebound highlights how sentiment around Musk can shift quickly, a key factor in the success or failure of xAI’s financing strategies.
High Stakes, High Risk
Elon Musk’s attempt to raise billions for xAI through debt and equity is a bold bet in a volatile landscape. The reserved approach by Morgan Stanley underscores market nervousness, shaped by political uncertainty, regulatory pressures, and crypto turbulence.
Whether Musk’s financing gamble pays off will depend on how he navigates these challenges and whether investor sentiment stays with him as xAI moves forward.
