SoftBank Group, the Japanese conglomerate known for its big bets in the technology sector, is in the news for leading a $40 billion investment in OpenAI, the creator of ChatGPT. Its latest investments valued OpenAI at $300 billion, two times its valuation in October 2024, when it raised $6.6 billion from a clutch of investors, including SoftBank.
SoftBank explained that it considered OpenAI to be its “partner closest to achieving Artificial General Intelligence, a key milestone on the path to ASI (Artificial Super Intelligence)”.
OpenAI has been launching increasingly better versions of AI tools, and recently announced it has crossed 1 billion weekly active users.
The latest investment reinforced SoftBank founder Masayoshi Son’s reputation as one of the most aggressive investors in tech, despite the series of setbacks he faced in the past few years.
Two years ago, SoftBank posted a $6.2 billion loss for the quarter ended September 2023. It was due to the bankruptcy of WeWork, an office-sharing startup, another big bet of Masayoshi. It was followed by the tech sell-off of 2021-22, triggered by high interest rates, inflation and recession fears. That also dented SoftBank’s financial performance. While it reported a net profit of ¥636.2 billion for the nine months ended December 2024, it lost money in the final three months. All these have not deterred Masayoshi from doubling down on AI investments.
Beyond OpenAI
SoftBank’s AI bet is not limited to OpenAI. It follows what it calls a “Cluster of No.1 AI Strategy”, investing in leading or potentially leading AI companies across segments—chip design, AI infrastructure, and application—and across industries.
In March, it acquired Ampere Computing, a chip designer, for $6.5 billion in an all-cash deal to strengthen its compute infrastructure. In 2024, it invested in Wayve, a self-driving car technology start-up based in the UK. It is also leading the $500 billion Stargate project, a massive data centre initiative in the US. It also has a 50-50 partnership, called Cristal Intelligence, with OpenAI to develop advanced enterprise AI solutions for large companies in Japan.
SoftBank has invested $6 billion in the first three quarters of this fiscal year and January 2025, compared to $3.9 billion in the four quarters of the previous fiscal year.
Fuelled by debt
While SoftBank said it has about ¥5 trillion ($31 billion) in cash reserves as of 31 December 2024, it expects to fund its proposed AI investment primarily through debt. It has had a history of using debt to fund acquisitions dating back to the 1990s.
The Wall Street Journal reported that the first $10 billion to OpenAI will be financed through loans from Mizuho Bank and other financial institutions. Similarly, to fund the Stargate project, it is reportedly aiming to borrow $16.5 billion, according to Bloomberg.
SoftBank will also raise over $4 billion in retail bonds to redeem earlier bonds. Such leverage has raised concerns. This month, Japan Credit Rating Agency revised its rating outlook for SoftBank from “stable” to “negative”. SoftBank has said it wants to keep its loan-to-value ratio below 25%. It might have to sell its shares, such as ARM, in which it holds 90%, to keep this ratio under control.
The AI bet
Mayasoshi Son is considered one of the biggest gamblers in the tech industry. His biography by former FT editor Lionel Barber is titled Gambling Man. However, the concern among investors is not that Son is taking a contrarian bet, but that a bubble could be brewing. US venture capitalists invested 44% of all their investments into AI start-ups in 2024, compared to 15% in 2020.
In June 2024, in a Goldman Sachs report, its stock research head Jim Covello warned that billions invested in AI companies may not see sufficient returns.
In February that year, Sequoia estimated that the AI industry spent $50 billion on the Nvidia chips in 2023 but generated only $3 billion in revenue. Much has changed in the AI industry since then. But it’s not clear the changes are enough to validate the big bets.
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