‘Guppy-level death’: Musk claims US$40 billion chips debt closed

Elon Musk said SpaceX has closed a US$40 billion debt deal to pay for the chips it needs to fuel its artificial intelligence ambitions. People familiar with the discussions, though, told Bloomberg News that talks over pricing were still ongoing.

“SpaceX closed US$40B of debt for GPUs,” Musk wrote in a post on X, referring to Nvidia Corp.’s graphics processing units. He went on to suggest that debt markets had all but shut for neoclouds depending solely on revenue streams from AI data centres. “That means the 200+ neoclouds are going to see guppy-level death and consolidation,” Musk wrote. “Some will make it through, but not many.”

Musk’s comments came on the heels of a tumultuous week for the AI industry in debt markets as concern mounted over the rapid spending, and limited profits so far to show for it. With investors demanding increasingly large premiums to finance the AI buildout, the volatility roiled pricing discussions over the SpaceX debt, which is being structured as private bonds to be issued by an off-balance sheet entity.

As of late Sunday in New York, those conversations remained ongoing and the deal hadn’t priced, people with knowledge of the discussions said. The parties are still working on finalizing the debt package in the coming days, they said.

More broadly in markets recently, much of the investor angst has been focused on the so-called neoclouds, which sell high-end computing power to technology companies. Noting SpaceX’s revenue from its Starlink business and rocket launches, Musk sought to differentiate his company from those businesses.

“As of the past few weeks, debt markets have almost entirely shut off access to money for any company that doesn’t have substantial revenue independent of AI data centres,” Musk said in his post. He later said that SpaceX won’t buy any neoclouds, calling it “pointless.”

SpaceX, which is rated investment-grade by the three largest credit graders, has seen the price of its own debt tumble in recent weeks. Credit-default swaps tied to SpaceX, which are used to insure against losses on the company’s debt, surged last week to a record 266 basis points at the close of trading Friday, a level more typical of a junk-rated borrower.

Bankers led by Goldman Sachs Group Inc. have been discussing the chips debt structure with investors led by Apollo Global Management Inc., with Apollo-backed Atlas SP slated to manage the entity, people familiar with the matter said last week, asking not to be identified discussing private information. Pacific Investment Management Co. has also considered investing, according to the people. The debt was expected to be issued in the form of private placements called 144a, the people said.

With the latest structure, SpaceX would avoid a repeat of a financing attempt last year by Musk’s AI startup, xAI. In that deal, an entity sought as much as US$20 billion of off-balance sheet debt through a sale-leaseback agreement with Valor Equity Partners. But SpaceX ultimately had to record about US$13 billion of that debt after it was declared a “failed sale-leaseback arrangement,” according to SpaceX’s latest earnings report.

The debt raise comes after strong third quarter earnings, with SpaceX’s AI unit turning a profit for the first time. The enterprise is increasingly driving revenue by selling computing power from its Memphis data centres to external AI labs and hyperscalers.

During SpaceX’s earnings call, chief financial officer Bret Johnsen indicated that the company was in discussions with lenders over further borrowing.

“We have a lot of conviction that we are going to be able to do this in a very measured fashion and continue to keep ourselves in that IG status along the way,” he said, pointing at the firm’s investment-grade rating.

—With assistance from Lynn Doan.