Elon’s AI startup xAI is torching through money at a speed that would bankrupt most companies in months. The company is trying to raise $9.3 billion in a mix of debt and equity, but even before locking that down, more than half of it is already earmarked to be spent in just three months, based on deal terms shown to investors. That cash drain is tied to the company’s $13 billion projected burn rate for 2025—over $1 billion every month, without pause, according to Bloomberg. Elon’s company is behind the AI chatbot Grok, and despite all the buzz, it expects to make just $500 million in revenue this year. Meanwhile, OpenAI, the creator of ChatGPT, expects to rake in $12.7 billion in the same period. Meanwhile amid this, the NAACP and the Southern Environmental Law Center said Tuesday they plan to sue Elon’s xAI over air pollution from its Memphis data center. The site runs on gas turbines and began operating last year without a permit. Attorney Patrick Anderson said there’s no legal exemption for the turbines and the facility has been active for over 364 days, which violates state rules. xAI claims it’s following the law and says its “temporary power units are operating in compliance with all applicable laws.” xAI struggles to match rivals while cash keeps vanishing Despite being backed by the world’s richest man, xAI is still fighting for air in an industry where hardware, not hype, decides who wins. The cost of building out AI infrastructure—which includes custom server farms and rare high-powered chips—is punishing. Harvey Schwartz, CEO of Carlyle Group, told shareholders that AI buildout globally will require $1.8 trillion by the end of the decade. All this has left startups like xAI burning through investor cash at a breakneck speed. That battle is costing xAI more than it’s making. The company has been bleeding cash trying to catch up with better-funded and more established competitors like Anthropic and OpenAI, both of which have clearer monetization paths. Source: Bloomberg Elon’s team believes it has an edge, though, because it isn’t renting servers and chips like some competitors—it’s buying the infrastructure outright. That access comes from xAI’s ties to X, Elon’s social media company formerly known as Twitter. X bought up a large stash of specialized AI chips, and xAI now has direct access to them. Elon has also told investors that xAI plans to keep buying more chips. xAI leans on social media data and investor hype to stay afloat After merging with X, xAI is using the platform’s massive, constantly updating archive of user content to train its models. That lets them dodge the costs that come with paying for licensed datasets like others in the space. This setup is what has Elon’s team claiming xAI will be profitable by 2027. OpenAI, by comparison, expects cash flow positivity in 2029, per Bloomberg’s earlier report. That projection, mixed with Elon’s name recognition and political clout, has kept investors interested—at least for now. Before tensions recently rose between Elon and President Donald Trump, the company’s value was climbing. xAI’s valuation hit $80 billion at the end of the first quarter of 2025, up from $51 billion at the end of 2024. Notable investors include Andreessen Horowitz, Sequoia Capital, and VY Capital. But fundraising hasn’t come easily. Since its founding in 2023, xAI has raised $14 billion in equity. By the start of this year, just $4 billion of that was left. Internal forecasts expected almost all of it to be gone by the end of Q2. To stay ahead of the burn, xAI is now finalizing a new $4.3 billion equity round, and it’s already told investors it plans to raise another $6.4 billion in 2026. That’s not even counting the $5 billion in corporate debt that Morgan Stanley is helping xAI rais e. That debt is supposed to fund data center development. Unlike some competitors that choose to fund each project separately, Elon’s company is choosing to go big all at once. To ease the burn slightly, the company told investors it expects a $650 million rebate from one of its chip manufacturers. That won’t solve the problem but might buy them a bit more time. The original pitch didn’t go over well with some investors. Bloomberg said there were early signs of resistance to the deal’s terms. In response, xAI gave a few select investors a deeper look at its financials earlier this week. That helped. Interest improved after the company adjusted the terms to be more investor-friendly and closed the equity raise. Cryptopolitan Academy: Tired of market swings? Learn how DeFi can help you build steady passive income. Register Now
