Morgan Stanley casts wider net for $5bn xAI debt sale amid Musk-Trump clash

Morgan Stanley is broadening its investor outreach to finalize a $5 billion debt offering for Elon Musk's AI venture, xAI, after initial demand fell short of full subscription despite early orders totaling $3.5 billion. The move comes amid concerns that escalating tensions between Musk and Donald Trump are impacting investor confidence, particularly among lenders previously attracted by Musk's political connections. xAI's valuation has nearly doubled to $94 billion since late 2024, driven by investor interest in AI exposure, and Morgan Stanley aims to close the deal by June 17.

Analysis

Morgan Stanley is encountering challenges in its $5 billion debt offering for Elon Musk's artificial intelligence venture, xAI, necessitating an expansion of its investor outreach to smaller lenders. Despite initial orders reaching $3.5 billion, the deal has not yet achieved oversubscription, reflecting slower-than-anticipated momentum potentially linked to heightened political tensions between Elon Musk and Donald Trump. This public discord appears to be deterring some lenders previously attracted by Musk's political affiliations. The debt sale, comprising fixed- and floating-rate loans along with senior secured notes, is proceeding even as xAI, now part of XAI Holdings alongside social media platform X, boasts a valuation that has nearly doubled to $94 billion since late 2024. While xAI is not currently profitable, its significant exposure to the artificial intelligence sector remains a key draw for investors. The overall sentiment surrounding this development is mixed and tinged with uncertainty, as Morgan Stanley aims to close the order book by June 17.

Key Decisions for Investors

• Investors should closely monitor the progress of xAI's $5bn debt sale by the June 17 deadline, as its success or difficulty will signal market appetite for high-growth, non-profitable AI ventures and potentially impact sentiment around Musk-led enterprises.
• The reported caution among some lenders due to the Musk-Trump hostilities highlights an idiosyncratic political risk factor that warrants careful consideration for any exposure to Musk's companies, including xAI.
• Given xAI's substantial valuation increase to $94bn despite a lack of current profitability and the mixed reception to its debt offering, prospective investors should weigh the long-term AI growth narrative against near-term financing uncertainties and valuation metrics before committing capital.