Musk's Bankers Discuss Plan to Wrangle xAI Debt After SpaceX Merger

Elon Musk’s bankers are working on a potential financing plan following the merger of SpaceX and xAI to address the heavy interest costs Musk has incurred over the past few years. The billionaire built up a debt stack of nearly $18 billion through his acquisition of Twitter and the creation of xAI. This plan is expected to reduce the expensive debt burden before an anticipated initial public offering later in 2026.

Morgan Stanley, which led Musk’s buyout of Twitter in 2022 and xAI’s subsequent debt raising, is expected to take a leading role in any financing plan. It is also one of the banks lined up to lead SpaceX’s IPO, alongside Goldman Sachs Group Inc., Bank of America Corp. and JPMorgan Chase & Co. The details of the IPO, however, remain subject to change.

Representatives for both SpaceX and xAI have not immediately commented on the matter. The financing deal is still not final and is being handled confidentially, as the people involved asked not to be identified.

Why Did This Happen?

Musk has a mixed track record with debt markets. His acquisition of Twitter, now X, was funded by a $12.5 billion financing package, which continues to weigh down the company with high interest payments. After a difficult start to Musk’s ownership, the banks initially held onto the debt, but eventually sold the last of the buyout debt in April 2026.

xAI merged with SpaceX last March, valuing the social network at $45 billion, including debt. The AI startup then took on an additional $5 billion in debt. Creditors, concerned about the company’s profitability and cash needs, urged xAI to avoid raising similar debt in the future.

The market has shown a cautious response to xAI’s debt challenges. Despite significant advancements in AI, the company faces regulatory scrutiny over non-consensual deepfake content generated by its Grok AI chatbot. This has raised concerns about the AI startup’s compliance with global regulations.

Musk recently reorganized xAI to improve execution speed, which led to the departure of several key employees, including co-founders Jimmy Ba and Tony Wu. In a post on X, Musk stated that the reorganization was necessary as the company grows, and that it "unfortunately required parting ways with some people" according to Musk's statement.

The reorganization comes amid preparations for the combined SpaceX-xAI company to go public later in 2026. The anticipated IPO could value the company at up to $1.25 trillion, which may provide a much-needed financial boost for xAI.

What Are Analysts Watching Next?

Analysts are keeping a close eye on the potential merger between SpaceX-xAI and Tesla. William Blair analyst Jed Dorsheimer suggested that the strategic alignment of power, energy, and autonomy across Musk’s portfolio could justify such a move. Additionally, Musk confirmed that Tesla would invest about $2 billion into xAI.

The success of the IPO and the ability of xAI to manage its debt burden will be key factors in determining the company’s future. Investors will be watching how Musk navigates these challenges while maintaining innovation and growth in the AI sector.

The reorganization of xAI and the ongoing debt discussions highlight the complexities of scaling a high-growth AI company. With regulatory pressures and market expectations, the next few months could be pivotal for xAI’s future under the SpaceX umbrella.