On the afternoon of June 5, Morgan Stanley, the investment bank, convened a group of executives from xAI, Elon Musk’s rapidly growing artificial intelligence startup, for a virtual meeting aimed at persuading Wall Street investors to back a multi-billion-dollar loan for the cash-burning company.
During the presentation, xAI’s leadership showcased the company’s data centers and Grok, its AI-powered chatbot. But as they spoke, investors’ attention drifted to Musk’s social media posts, where he was publicly criticizing President Donald Trump. On the platform X, Musk accused Trump of concealing ties to Jeffrey Epstein and expressed frustration over the president’s lack of gratitude for Musk’s support in securing his election victory. Investors watched the unfolding controversy on their screens while xAI’s executives outlined their ambitious vision for the company’s future.
Now, banks are concerned that the strained relationship between Musk and Trump could jeopardize xAI’s $5 billion capital-raising effort.
For nearly two and a half years, Wall Street has grappled with unease over Musk’s control of X, the social media platform he acquired. His takeover led to an exodus of advertisers, slashing the company’s primary revenue stream. The uncertain future of X made it challenging for banks to offload the loans they had extended to finance Musk’s Twitter acquisition. However, Musk’s alliance with Trump during last year’s U.S. presidential campaign shifted the landscape.
Following Trump’s election, investors and funds became eager to capitalize on deals tied to the new administration’s policies. As Musk cut costs and began re-attracting advertisers, X’s outlook brightened, bolstered by its stake in xAI, which has seen its valuation soar.
This created an opportunity for lenders. Morgan Stanley successfully offloaded approximately $11 billion of X’s debt between January and April without significant losses. The recent merger between X and xAI further enhanced prospects, driven by the latter’s immense growth potential.
Yet, investors are now assessing the risks posed by potential White House scrutiny of Musk’s sprawling business empire. Tesla’s stock has dropped roughly 7%, and President Trump has threatened to eliminate subsidies and government contracts tied to Musk’s ventures.
The recent social media spat between Musk and Trump presents a fresh hurdle for Morgan Stanley, already caught off-guard by Musk’s prior online controversies. The bank is currently facilitating a $5 billion loan for xAI, funds earmarked for building and expanding data centers to train Grok, the company’s large language model, which leverages real-time content from platforms like X to answer user queries.
Morgan Stanley had hoped to sell this debt at roughly 100 cents on the dollar. However, following the Musk-Trump dispute, X’s outstanding debt traded at a discount of several points on June 5, dipping to around 95 cents on the dollar. By June 6, the loans had rebounded slightly to 97 cents, according to a trader. With the debt’s value declining, investors anticipate Morgan Stanley may need to offer discounts on xAI’s bonds, raise interest rates, or provide other incentives to finalize the deal.
Initially, Morgan Stanley aimed to sell some loans and bonds at a 12% interest rate, reflecting the high risk of the debt. The deal remains unfinalized as the month progresses. Meanwhile, xAI is arranging a $300 million equity sale, valuing the company at $113 billion, according to sources familiar with the matter.
During the June 5 meeting, Morgan Stanley shared financials revealing xAI’s rapid cash burn, with a reported $341 million loss (before interest, taxes, and depreciation) in the first quarter. Still, the company projects reaching break-even within a few years.
Investment banks are wary that market volatility could complicate debt sales. So far, initial buyers remain engaged, according to sources, with demand for both debt and equity deals rising since June 5, a company advisor noted.
