Morgan Stanley Struggles to Boost Demand for xAI Corp's $5 Billion Debt Issuance Amid Musk-Trump Feud

Morgan Stanley is actively seeking to boost demand for a $5 billion debt issuance by Elon Musk's AI startup, xAI Corp. This effort comes amidst escalating tensions between Musk and former U.S. President Donald Trump, which has introduced new risks for investors tied to Musk’s business empire, including Tesla, SpaceX, and xAI. The conflict began after Musk criticized Trump’s tax-and-spending bill, leading to a rapid deterioration of their once-close relationship. This political drama has significant implications for xAI, particularly in areas where federal contracts and political goodwill are crucial.

Initially, Morgan Stanley had received over $3.5 billion in orders when it launched the debt issuance earlier last week. Some investors believed this indicated that the transaction would quickly be oversubscribed—a goal that has been easily achieved in previous Musk-related financing projects. However, as of this Monday, demand had only increased to around $5 billion, prompting Morgan Stanley to reach out to some small lending institutions that were not approved to participate last week.

xAI is attempting to raise $5 billion in debt and $300 million in equity at a valuation of $113 billion. Morgan Stanley is leading this deal, but the Trump-Musk feud has created new concerns among potential investors. The loans, initially expected to sell for close to 100 cents on the dollar, dropped to 95 cents after the feud went public and then rebounded to around 97 cents. Morgan Stanley may now need to offer higher interest rates or discounts to complete the deal. The original plan was to sell some of the debt at a 12% rate, which already indicated a high level of risk.

The political tensions have also affected xAI’s financial health. The company posted a Q1 loss of $341 million before interest, taxes, depreciation, and amortization. While xAI expects to break even in the coming years, rising borrowing costs could extend this timeline. The political drama has introduced a new variable: political risk across Musk’s portfolio. Tesla, SpaceX, and xAI all benefit from regulation, federal partnerships, and investor confidence in Musk’s ability to work with Washington. If these ties fray, investors may need to rethink how they price these companies, including discounting future growth expectations and accounting for higher volatility. For now, Musk-linked assets are under pressure, and the political spotlight isn’t fading. Investors will be watching what happens next.