WSJ What’s News - Musk Taps Into Private Credit to Fund AI Ambitions

Episode Date: July 22, 2025

P.M. Edition for July 22. To keep his company competitive in a wild and costly AI battle, Elon Musk is seeking up to $12 billion for xAI as it looks to build a new data center. Plus, Republican leaders in the House have cut short this week’s session as the furor over disclosures from the Jeffrey Epstein investigation continues. “Buy now, pay later” plans become more popular among Americans, but they might hurt their chances of mortgage or credit-card approval. WSJ personal economics reporter Imani Moise discusses why banks are worried about the rise of “buy now, pay later.” Alex Ossola hosts.   Sign up for the WSJ's free What's News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to this year's championship game. This is the big one. With Amex Platinum, you have access to an annual dining credit to some of the hottest restaurants around town. Score! So you can raise the bar on game night. That's the powerful backing of Amex. Terms and conditions apply. Learn more at amex.ca slash yamex. Elon Musk is turning to new funding sources to keep pace in the artificial intelligence race.

Plus, private credit firms are seeking in-house lawyers as their deals get more complex. A few years ago, private credit mainly referred to middle market direct lending and now it encompasses everything from asset-based lending all the way to collateralized loan obligations and BDCs. And discord over the Jeffrey Epstein investigation brings the House of Representatives to a standstill. It's Tuesday, July 22nd. I'm Alex Osoleff for the Wall Street Journal. This is the PM edition of What's News,

the top headlines and business stories that move the world today. In an exclusive, we're reporting that XAI, Elon Musk's artificial intelligence startup, is looking to secure up to $12 billion to fuel its ambitious expansion plans. That's according to people familiar with the situation. The money would be used to buy a massive supply of advanced NVIDIA chips that would be leased to XAI for a new jumbo-sized data center meant to help train and power the AI chatbot Grok. Valor Equity Partners, an investment firm

whose founder Antonio Gracias has close ties to Musk, is in talks with lenders to raise the capital. Musk needs all the financial firepower he can get to stay competitive in a wild and costly AI battle with well-funded rivals like Google, Microsoft, and Meta. Grok hasn't gained nearly as much traction as OpenAI's chat GPT. The funding push comes just weeks after the company raised $10 billion through sales of

stock and debt. With XAI's balance sheet already stretched, Musk is getting creative to keep the money flowing. SpaceX recently invested $2 billion into XAI, effectively moving cash from the coffers of one Musk company to fund another. People familiar with the situation said that for the $5 billion in debt XAI raised in June, the company pledged its most prized asset, the intellectual property behind Grok, as part of the collateral. General Motors reported that new tariffs on imported cars and auto parts took a $1.1 billion

bite out of its bottom line and net income shrank 35% in the second quarter. Chris Odds covers autos for the Journal and joins me now. Chris, how are President Trump's tariffs weighing on the industry? This is really the first look. GM is the biggest automaker in the US, both by volume and market share, and Trump's tariffs came on in early April. So this quarterly results that are starting to flow in really give us the first kind of full picture of what this is going to mean for the industry. They said the impact could be a little bit greater even in the third quarter. Most analysts see the auto industry slowing down in the second half of the year,

which is adding to the pressure. Are consumers yet feeling the price increases potentially from some of these tariffs? There have been some price increases here and there, but for the large part, automakers have actually voided raising prices. In GM's case, they've been quite explicit that they want to keep things consistent. And for them, the prospect of Trump reaching a deal with Mexico, Canada, and or Korea could really go a long way to getting them out of the tariff problems. So there really hasn't been much discernible impact yet. Most analysts think that in the long run, the situation can't hold. You just can't add these structural

costs and not expect them to ripple through the market. That was WSJ Reporter Chris Otz. Thank you so much, Chris. Thank you. The U.S. reached trade pacts with the Philippines and Indonesia today, while Treasury Secretary Scott Bessent said Federal Reserve Chair Jerome Powell should finish out his term if he so decides. Major U.S. stock indexes ended the day mixed. The S&P 500 rose 0.1 percent, giving it another record high.

The Dow rose 0.4 percent. And the Nasdaq retreated 0.4% from yesterday's record, weighed down by chip makers such as Nvidia. Furor over disclosures from the Jeffrey Epstein investigation brought the House of Representatives to a standstill today. Republican leadership has cut short this week's session

and put off any action until September, as some GOP members demanded votes on more releases related to the disgraced financier and sex offender. Washington has been gripped by the fallout from the Justice Department's decision earlier this month to refuse to release more documents from the Federal Bureau of Investigation's probe of Epstein. At a news conference, House Speaker Mike Johnson called for quote, maximum transparency around the investigation, but said he wanted to give the Trump administration space to handle the issue. He has now ordered his DOJ to do what it is we've all needed DOJ to do

for years now, and that is to get everything released. So they're in the process of that. There's there's no purpose for Congress to push an administration to do something that they're already doing. Earlier, a senior Justice Department official said he would seek to interview Epstein's longtime associate, Ghislaine Maxwell, who's serving a 20-year prison sentence for sex trafficking. Deputy Attorney General Todd Blanch said that he had contacted Maxwell's lawyer to see if she would be willing to speak with federal prosecutors. A lawyer for Maxwell confirmed in a post on X that they are in discussions with the government and thanked President Donald Trump for, quote, his commitment to uncovering the truth in this case.

Asked by reporters at a meeting with Filipino President Ferdinand Marcos Jr., President Trump said he wasn't aware of Justice Department plans to interview Maxwell. Yeah, I don't know about it, but I think it's something that would be, sounds appropriate to do, yeah. Do you have any concern that your Deputy Attorney General, as your former attorney, would be conducting the interview, given... No, I have no concern. He's a very talented person, he's very smart. I didn't know that they were going to do it. I don't really follow that too much. It's sort of a witch hunt.

Coming up, choosing to buy now, pay later on an expensive purchase? Your bank might punish you for it. More after the break. Summer is what you make of it. And Tim Horton's fruit quenchers have something for every mood. So choose from a variety of fruity flavors

in sparkling, frozen, or lemonade. Order yours on the Tim's app today at participating restaurants in Canada for a limited time. The option to buy now pay later with companies like Affirm or Klarna is becoming an increasingly popular way for consumers to pay for everyday goods like groceries. But banks are wary of them. And now they're saying that binging on buy now pay later might actually hurt your chances of getting approved for a mortgage or a credit card. WSJ personal economics reporter Imani Moise joins me now

with more. Imani, how can buy now pay later affect your credit? It really depends. Right now it seems like it can go both ways. So FICO, the largest credit scoring agency in the US, announced last month that they are rolling out a new model that can actually incorporate Buy Now Pay Later data into your credit score, which is the first time you're going to see these types of loans impact your credit score directly. And really the first time FICO has had to update a model specifically to accommodate a new kind of loan. That's how fast this thing is growing. But according to that new model, the average Buy Now Pay Later user will actually see their score increase. But what banks are

saying is that as this data gets reported, they're going to scrutinize it a little bit more and it actually might hurt your chances of getting approved. So why are banks worried about buy now pay later? Mostly because it's growing so quickly. And historically buy now pay later hasn't been reported to credit bureaus, which means that banks really do not have an independent way of seeing how much debt potential borrowers are taking on. Some banks have called it phantom debt, which means that it's harder for them to measure risk and figure out how much credit, whether it's a credit

card, mortgage, auto loan, anything else, they should extend to a customer because they can't see how much other debt they might already have. It's also a threat to their business model because a lot of buy now pay later plans are zero interest. So as buy now pay later becomes more popular, people are less likely to use credit cards, which is a big profit driver for the banks as well. So banks that are worried about this, what are they doing? Some lenders are being more proactive than others. I spoke with one credit union that's actually proactively reaching out to customers when they notice heavy buy now pay later use in their transaction history

because in their view they think their products are safer for consumers because it does come with a higher personal touch in terms of counseling and they're afraid that some of their customers are going to get in over their head because it's so easy to apply for buy now pay later. And some big banks have moved to block their customers from repaying buy now pay later loans with their credit card. But at the same time, some of these banks are launching their own products that look very much like buy now pay later. For example, on Chase credit cards, they have something called pay over time, which lets

you separate transactions or individual purchases into installment payments, which is effectively what buy now pay later is. That was WSJ Reporter Imani Moiz. Thanks, Imani. Thank you. We've talked before on the show about the rise of private credit, loans provided by non-bank lenders. Now to facilitate their work, private credit firms are increasingly building up their own

staple of in-house legal talent. For more, I'm joined now by WSJ Pro reporter Isaac Taylor. Isaac, why are some of these private credit firms doing this? It's really because of a rise in deal-making complexity and also regulatory compliance complexity as well. And this demand has really been driven by fundraising needs, firm growth, and a surge in deal volume within the private credit sector.

And as private credit has grown, the breadth of what is being done in-house has expanded so much that a lot of these firms are realizing that maybe they didn't have the in-house technical skills or knowledge, and they're really looking to expand that talent pool now. And where are they looking to find this expertise? A lot of these private credit firms are really poaching people from law firms. And these are your elite blue-chip law firms. And it's really because they have the technical expertise to really come in

and get started and get the ball rolling from day one. A first-year JD coming straight out of school makes an annual salary of about $225,000 and when you add a bonus which is usually about $20,000 that comes out to a total compensation of about $245,000. And so to poach someone obviously these private credit firms need to expand past that and one of the ways that they're doing that is offering carried interest, which is a share of investment profits. Sounds like a pretty good deal for some of these private credit firms, but

what does this mean for law firms? A lot of law firms really aren't moving mountains to keep their people from going in-house. And it really has to do with when these people go in-house, a lot of times they'll send that firm's business back to the law firm that they just came from. And so law firms don't really view it as a net negative. If one of their top people leaves, of course they probably didn't want that. But if that person in turn just sends a deal or some type of structure back to the law

firm for them to work on it, it's really a positive for them. That was WSJ Pro reporter Isaac Taylor. Thank you, Isaac. Thank you. And that's What's News for this Tuesday afternoon. Today's show is produced by Pierre Bienamé with supervising producer Michael Kosmides. I'm Alex Osela for The Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.