Morgan Stanley Backs Elon Musk’s AI Vision by Launching $5B xAI Debt

Morgan Stanley (MS) is making a huge move for Elon Musk’s xAI. The bank is marketing a colossal $5 billion package. This includes bonds and two loans. It comes amid public tensions between Musk and the US President. The offering signals a significant financial push for xAI.

Morgan Stanley’s $5B Debt Push Tests Investor Appetite

Morgan Stanley began discussing terms last week. One option is a floating-rate term loan B. It sits at 97 cents on the dollar. The variable interest rate is 700 basis points over the SOFR benchmark. A second option offers a fixed rate of 12%. These terms remain preliminary. Investor demand will finalize the details. Morgan Stanley shared some xAI financials in a recent investor meeting.

“Best Efforts” Approach Signals Caution

Morgan Stanley adopts a different strategy for this $5 billion xAI debt. The bank will not guarantee the issue volume. It also commits no capital of its own. This is a “best efforts” transaction. The debt size depends purely on investor interest. This practice is not uncommon.

However, it shows banks are more prudent. Lending in an uncertain macro environment drives this caution. Banks also likely avoid a repeat of the 2022 X financing. Morgan Stanley and six other banks committed $13 billion in debt for Musk’s $44 billion X acquisition. They were stuck holding that debt for over two years.

Musk’s Political Sway Adds Market Risk

Elon Musk’s public dispute with President Donald Trump casts a shadow. It raises questions over his businesses’ future. Private companies could face federal contract cancellations or grant withdrawals. This political context heightens investment risk. Investors may demand higher risk premiums on this new xAI debt. Traffic on the X platform rose before and after the US presidential elections. Musk’s closeness to Trump also boosted interest. Investors sought influential links to a new regime. A surge in AI company exposure interest also played a role.

xAI Pursues Massive Equity Valuation

Beyond debt, xAI seeks substantial equity funding. Talks are underway to raise around $20 billion. This equity deal would value xAI at over $120 billion. Some discussions even push figures as high as $200 billion. Musk initially explored merging xAI with X. This plan did not move forward. The company continues to pursue massive funding to fuel its AI ambitions.

What Is the Prediction for Tesla Stock?

When it comes to Elon Musk’s companies, most are privately held. However, retail investors can dive into his most popular venture: Tesla (TSLA). Turning to Wall Street, analysts hold a consensus “Hold” rating on TSLA stock. This assessment comes from 35 experts. Breaking down the ratings, 14 analysts recommend a Buy, 12 suggest a Hold, and nine advise a Sell.

Furthermore, the average TSLA price target sits at $285.97 per share. This figure implies a 7.3% downside risk from its last trading price of $308.58.

See more TSLA analyst ratings