PE giant Apollo provides $3 billion in financing to purchase NVIDIA chips for leasing to xAI

Apollo Global Management is extending its reach into AI computing assets through structured financing that involves "buying chips and then leasing them," providing cash flow buffers for high capital expenditure projects like xAI, while also opening up a revenue path for investors based on hardware as the underlying asset.

According to The Information citing informed sources, Apollo is close to finalizing a loan arrangement of approximately $3.4 billion, which will be directed towards an investment vehicle that plans to purchase Nvidia chips and lease them to xAI, owned by Elon Musk. The deal could be finalized as early as this week.

This will be Apollo's second significant support for a chip leasing vehicle aimed at xAI. Previously, Apollo provided a similar $3.5 billion loan in November last year. Informed sources indicate that Apollo also plans to invest in the equity of this new vehicle, which aims to raise a total of approximately $5.3 billion in equity and debt funding.

Valor Equity Partners is orchestrating the aforementioned transaction. This chip vehicle is part of a larger financing initiative by Valor, which aims to raise $20 billion in debt and equity funding for AI chips to be installed in xAI's data centers.

xAI has a monthly cash burn exceeding $1 billion, with heavy asset expansion driving financing needs

The Information cites financial documents stating that, in the first nine months of 2025, xAI's expenditures on real estate and equipment reached $7.8 billion for the construction of large data centers aimed at its Grok series models.

As of the fall of 2025, xAI's monthly cash burn exceeds $1 billion. During the same period, xAI recorded nearly $210 million in revenue.

In this context, acquiring chips through a vehicle and leasing them can convert some one-time capital expenditures into ongoing leasing costs, thereby alleviating short-term cash pressure.

Musk has not encountered significant resistance in raising funds for xAI. The Information reported that the company stated last month it raised $20 billion in a separate funding round, exceeding initial expectations by $5 billion.

Informed sources noted that Apollo's agreement for this transaction occurred before Musk decided to merge xAI with SpaceX.

Return assumptions: Base case annual return exceeds 22%, downside scenario around 17%

The debt provided by Apollo for this investment vehicle is expected to carry an interest rate of 9.5%. According to informed sources, Apollo also plans to sell part of the debt to other institutions and assist in selling the equity portion of the vehicle.

In presentations to equity investors, Valor predicts that if the vehicle can sell chips and data center equipment at a quarter of the purchase price after five years—described by Valor as the "base case"—investors could achieve an annual return of over 22%. Even in "adverse scenarios," investors can still achieve an annual return of nearly 17%. This scenario assumes that the tool can sell chips to refiners at raw material values (including gold and copper). If xAI renews the lease at a discount price of 40% to 30% for three years, investors can also achieve similar returns.

Apollo's Strategy: Accelerating Investment in AI Chips and Data Center Financing

Apollo, which manages over $900 billion in assets, is accelerating financing for AI chips and data centers. Apollo acquired Stream Data Centers in Texas last year and is exploring the use of its life insurance business funds to invest in computing facilities for large technology companies.

The Information also mentioned that Apollo often intervenes when companies face difficulties in raising cash, typically demanding higher returns and setting strict risk protection clauses. The financing related to chips associated with xAI continues its private credit strategy of exchanging risk pricing for returns