Elon Musk’s artificial intelligence company, xAI, is making headlines again. This time for a $5 billion debt package being marketed by Morgan Stanley. The move comes at a turbulent moment, with Musk embroiled in a very public feud with US President Donald Trump. As the world’s richest man seeks to turbocharge his latest AI venture, the stakes and the risks have never been higher.

From Twitter Takeover to AI Ambitions

Musk has built his fame in an unconventional manner. Last year, he acquired Twitter for nearly $44 billion by securing $13 billion in debt from major banks. The company then went through restructuring and rebranded itself as X, focusing on using AI. Annual interest payments alone total $1.3 billion, squeezing profits if revenue growth stalls. Combining with xAI and seeking funds now are part of the company’s plan to secure finances and ensure its future growth in AI.

The $5 Billion Gamble

Morgan Stanley has begun pitching a $5 billion combination of bonds and loans for xAI, offering investors two distinct options: a floating-rate term loan B priced at 97 cents on the dollar with a variable interest rate of 700 basis points over the SOFR benchmark, and a fixed-rate package at 12% interest. These terms are still in flux and will ultimately depend on investor appetite. This is not a typical bank-led deal. Morgan Stanley is taking a “best efforts” approach, meaning the final size of the debt package will depend on how much investors are willing to commit. The bank is not guaranteeing the full amount or putting its own capital at risk, a clear sign that lenders are being more cautious in today’s unpredictable economic climate.

Why Morgan Stanley Is Playing It Safe

The cautious approach is informed by recent history. In 2022, Morgan Stanley and a syndicate of banks committed $13 billion in debt to help Musk acquire Twitter (now X). When interest rates shot up and the company’s fortunes wavered, the banks were left holding that debt for over two years far longer than planned. They only managed to offload it earlier this year, after X’s performance improved and investor interest in AI and social media surged around the U.S. presidential elections. This time, Morgan Stanley is determined to avoid being caught in a similar bind. By making the xAI deal contingent on investor demand, the bank is signalling a new era of prudence for big-ticket tech financing.

xAI’s Sky-High Ambitions

xAI is not just raising debt. The company is also in talks to secure as much as $20 billion in equity funding. Depending on whom you ask, the potential valuation for xAI ranges from $120 billion to as high as $200 billion, putting it in the same league as some of the world’s most valuable tech startups. In early June, reports surfaced that xAI was seeking a $113 billion valuation in a $300 million share sale. If the $20 billion equity round goes through, it would be the second-largest startup fundraising ever, trailing only OpenAI’s $40 billion round earlier this year. The capital is expected to fuel xAI’s rapid expansion and help Musk manage the heavy debt load left over from his takeover of Twitter/X, which reportedly costs over $1.3 billion annually in interest payments.

Musk-Trump Rift: A New Wild Card

The timing of xAI’s fundraising could hardly be more dramatic. Musk and Trump, once political allies, are now locked in a public spat. The feud erupted after Musk criticized Trump’s tax and spending bill, prompting Trump to threaten retaliation, including the possible cancellation of government contracts with Musk’s companies. The political situation causes actual problems for people. Due to its $380 billion loss this year, marks Tesla as the biggest 2025 loss among top companies and is ranked as the worst-performing big-business stock in 2025. The confidence of investors has lowered not only due to the Musk-Trump dispute but also because electric vehicle demand is slowing and Musk’s political actions have been questioned.

The doubt is affecting how much money investors can raise for xAI. Wall Street is worried that government contracts could be taken away, which would negatively affect Musk’s private companies. There may be investors who want a greater reward to take on the higher risk.

X and xAI Merger: A Power Play in AI

It was announced earlier this year that Musk merged X and xAI in order to form one of the leading companies in artificial intelligence. The plan behind the merger was to join resources and drive innovation so xAI could easily compete with OpenAI and other big players. Before, Musk was thinking about funding the combined company, xAI and X, while working on a merger. However, this plan did not go through. Even so, being one company gives them an advantage thanks to Musk’s ability to bring in new investors and employees, plus his major role in both technology and politics.

Investor Appetite and Market Dynamics

Although politics may influence the market, AI is still attracting the interest of many investors. With more companies and governments turning to artificial intelligence, this sector has attracted a lot of investment attention due to xAI’s use of ChatGPT and Chroma DT. Yet, the ongoing feud between Musk and Trump has introduced an extra risk to the company. Some are uncertain about their approach because they’re seeing new risks from the government or regulations. Because the situation is so uncertain, the ‘best efforts’ structure in the debt deal allows banks and investors to weigh the opportunities of AI while taking into account the troubles of political change.

Future Outlook: Innovation Amid Uncertainty

Looking ahead, xAI’s future will depend on its ability to navigate both financial and political headwinds. The company’s commitment to innovation and strategic partnerships gives it a strong foundation, but the risks are real. Investor sentiment could shift quickly if the Musk-Trump feud escalates or if government support for Musk’s ventures wanes. Still, the underlying trends are favourable. Demand for AI solutions continues to grow, and xAI’s technological prowess and market positioning make it a top contender in the race to define the future of artificial intelligence. If Musk can steer the company through the current turbulence, xAI could emerge as a dominant force in the industry.

For now, all eyes are on Morgan Stanley’s $5 billion bet and on whether investors are willing to follow Musk into the next frontier of AI despite the political storms swirling around him.

Author’s Opinion:

In my opinion, Elon Musk is good at handling challenges, yet the growing debt, political matters, and uncertainty in the market might cause difficulties for xAI. With these problems addressed, xAI might become a key player in the future of AI.