Tokyo — SoftBank group CEO Masayoshi Son’s “all in” bet on OpenAI appears to be paying dividends after the ChatGPT maker’s valuation soared this year, producing a surge in quarterly profit for the Japanese technology investor.
The results mean more money for SoftBank to employ in its AI-related investment spree even as concerns mount of an AI bubble in which valuations overestimate the profits the technologies can generate.
SoftBank reported on Tuesday that second-quarter net profit more than doubled to ¥2.5-trillion ($16.6bn), driven by valuation gains in its OpenAI holdings.
It has also stepped up fundraising activities, selling equity holdings — such as the remainder of its shares in Nvidia for $5.83bn — as well as issuing bonds and taking out bridging loans.
SoftBank has been a repeat investor in Nvidia. It sold off its investment before the AI boom took off and then bought the chipmaker’s shares again before divesting in October to double down on its biggest investment bet, OpenAI.
Asked about the timing of the sale of the Nvidia stake, CFO Yoshimitsu Goto said at a press briefing he should not comment, but added that because SoftBank’s investment in OpenAI was very large the company had to use its existing assets to finance new investments.
“Son is a savvy investor so selling the entire stake must mean that he is no longer optimistic about the share price,” said Wong Kok Hoi, founder and CEO of APS Asset Management in Singapore. “Big tech companies may continue to invest heavily in GPU chips but not at this year’s level for many years.”
Softbank’s second-quarter earnings coincide with a bull run in technology-related stocks, which has sent its share price to record highs. SoftBank announced a four-to-one stock split to make its shares more accessible after they nearly quadrupled in value over the past six months.
AI bubble
As the wave of investment in AI infrastructure such as data centers continues apace and frontrunners in AI development such as OpenAI project rapid growth, SoftBank has been a major beneficiary.
Nevertheless, there are growing concerns among investors about an AI bubble amid doubts that the enormous sums committed to capital investment by leading firms may not generate the high profits to justify the investments.
Losses are mounting at OpenAI, sources told Reuters in October, though its valuation has risen steadily and sharply throughout the year.
“There are various opinions but SoftBank’s position is that the risk of not investing is far greater than the risk of investing,” Goto said at the briefing in Tokyo.
In March, SoftBank agreed to lead a funding round of up to $40bn in OpenAI at a valuation of $300bn. In October, a source told Reuters that SoftBank was among a consortium of investors acquiring $6.6bn worth of shares from OpenAI employees at a higher valuation of $500bn. SoftBank’s total investment in OpenAI is expected to reach $34.7bn by the end of December.
Its Vision Fund unit posted an investment gain of ¥3.5-trillion, primarily from the group’s holding in OpenAI, which totalled ¥2.16-trillion for the quarter.
The results announced on Tuesday compared with a profit of ¥1.18-trillion in the same period last year, and were SoftBank’s best quarterly result since July-September 2022.
Deep pockets
The AI-related investments are SoftBank’s most ambitious since the launch of the Vision Fund vehicles in 2017 and 2019, and demand deep pockets.
Softbank sold its 32.1-million shares of Nvidia, including those held by the asset management subsidiary, in October and also sold part of its stake in T-Mobile for $9.17bn.
Since the start of April, it has issued bonds in three currencies worth ¥620bn, $2.2bn and €1.7bn. It also took out a bridging loan of $8.5bn for its investment in OpenAI and arranged a $6.5bn bridging loan for its acquisition of semiconductor design company Ampere, which it has not yet drawn.
Son, the founder, is experienced in making leveraged bets on what he sees as transformative technologies, but his track record is mixed. While an early bet on Chinese e-commerce site Alibaba proved lucrative, other bets have gone awry, such as shared office provider WeWork.
Reuters
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