SoftBank Group Corp reported a net profit for the first fiscal quarter that significantly exceeded market expectations, driven by massive unrealized gains from its stake in chipmaker Intel.
The Japanese conglomerate disclosed a net profit of 347.3 billion yen (approximately $22 billion) for the quarter ending in June. This figure handily beat the analyst consensus of 120.23 billion yen, as compiled by Refinitiv. However, net profit was still down nearly 18% year-over-year.
Outsized Intel Gains Offset Vision Fund Volatility
SoftBank recorded a 1.3 trillion yen ($82 billion) investment gain from its holding in Intel. Last year, the company announced an investment of roughly $2 billion in the US chipmaker. This contribution helped the investment segment, which operates independently of the Vision Fund, post a divisional profit of 1.05 trillion yen. Over the past 12 months, Intel's stock price has surged by nearly 400%.
Meanwhile, the value of assets in the Vision Fund portfolio, which includes companies like OpenAI and TikTok parent ByteDance, increased by $1.7 billion in the first quarter. This appreciation was primarily driven by a $2.2 billion increase in the value of its stake in Chinese company ByteDance, which offset valuation declines from other projects such as PayPay. The Vision Fund segment posted a profit of 5.4 billion yen, a stark contrast to the 451.4 billion yen profit recorded in the same period last year.
OpenAI's Impact Temporarily Diminishes
SoftBank stated that its investment in OpenAI generated no investment gains or losses this quarter. This is a significant shift from the previous fiscal quarter, where the Vision Fund booked nearly $20 billion in gains, the vast majority of which came from a valuation increase in OpenAI.
In February, SoftBank announced a commitment to invest over $60 billion in OpenAI. Upon completion of the transaction, which already includes $55 billion in funded capital, it will hold approximately 13% of the AI company. However, the company clearly stated that no investment profit or loss was recognized for this investment in the current quarter.
By positioning itself in semiconductor companies like OpenAI and Arm, SoftBank is attempting to secure a central role in the artificial intelligence revolution. However, investors are currently scrutinizing the capital expenditure of tech companies in the AI space, expecting to see tangible returns on these investments. Since hitting an all-time high in June, shares of SoftBank have fallen by approximately 34%. Investors are concerned about the source of funds for SoftBank's continued aggressive bets and the heavy concentration of its portfolio in two major holdings: Arm and OpenAI.
AI Computing Segment Losses Widen
SoftBank's AI computing segment posted a loss of 200.8 billion yen, a significant widening from the 32.4 billion yen loss recorded in the same period last year. This segment includes several chip companies under SoftBank's control, such as Arm, Graphcore, and Ampere. SoftBank explained that the profitability deterioration was caused by rising research and development expenditures at its related companies.
In June, SoftBank CEO Masayoshi Son stated in an interview that he does not believe the company's exposure to OpenAI is excessive, noting that OpenAI accounts for approximately 20% of SoftBank's net asset value. Son also suggested that the scale of the artificial intelligence revolution will be 50 times larger than the internet bubble era. "This is the largest technological change in human history, and we are currently only in the equivalent of the early days of the internet," Son added.
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