Softbank Group Corp reported a significant increase in its fourth-quarter profit on Wednesday, largely driven by a rise in the valuation of its investment in OpenAI. This strong performance has bolstered Softbank's confidence to further increase its stake in the developer of ChatGPT.
Amid global market turbulence influenced by Middle Eastern tensions, OpenAI emerged as a key profit driver for Softbank. The Japanese tech conglomerate posted a net profit of 1.83 trillion yen (approximately $116 billion) for the quarter, far exceeding the average analyst forecast of 295.2 billion yen. According to Bloomberg Intelligence analyst Kirk Boodry, this performance is likely attributable to an estimated $25 billion valuation gain from Softbank's investment in OpenAI during the quarter.
While other investments in Softbank's portfolio delivered modest returns against the backdrop of global market volatility, the gains from OpenAI stood out. This indicates Softbank's growing reliance on the U.S. startup. OpenAI currently faces intense competition from rivals like Anthropic and Google, and reports suggest it has not met its own internal highest performance targets.
Softbank founder Masayoshi Son has been selling assets and taking on substantial debt to increase investments in the artificial intelligence sector. The company secured a $40 billion bridge loan in March and announced ambitious plans, including investing hundreds of billions of dollars in data centers.
Since Softbank's initial investment in OpenAI at a $157 billion valuation, the U.S. startup's valuation has soared to $852 billion. Softbank has committed to increasing its total investment in OpenAI to $64.6 billion by the end of this year.
Richard Kaye, Co-Head of Japanese Equity Strategy at Comgest Asset Management, stated, "Softbank's investment performance has been good, perhaps even better than is commonly perceived." Kaye noted that Softbank's business is also supported by a range of other assets, including chip designer Arm Holdings Plc and its Japanese telecom subsidiary. Softbank holds about 90% of Arm, whose stock rose 38% in the March quarter.
"For any major global tech company, it is very difficult to spread investments among competing parties. In this regard, Softbank is no exception," Kaye added.
Softbank's Vision Fund, which holds the OpenAI stake, reported investment gains of 3.08 trillion yen. During this period, the share prices of Softbank's major listed holdings, including Coupang Inc. and Grab Holdings Ltd., fell significantly. The vast majority of companies in the Softbank Vision Fund portfolio are privately held, making analyst predictions challenging.
Undeterred by external controversy and skepticism, Softbank continues to push forward with its AI bets. Both Arm and Softbank's mobile business unit are expanding into AI hardware. Arm plans to sell its own chips, while Softbank's wireless business unit aims to enter the new cloud domain and produce batteries designed specifically for AI data centers.
Reports indicate that Softbank Group is preparing to establish an AI robotics company named Roze and may pursue a U.S. listing for it. Masayoshi Son has held discussions with French President Emmanuel Macron regarding an ambitious French AI data center project expected to be announced in the coming weeks.
Furthermore, recent media reports state that Japan's Softbank Group has invested over $450 million in U.K.-based AI chip and system developer Graphcore to continue bolstering its AI infrastructure investments. Once seen as a potential challenger to Nvidia, Graphcore has yet to achieve scaled commercial success despite raising hundreds of millions of dollars in previous funding rounds. Son previously described Graphcore as a company with deep expertise in chip development technology.
These projects will increase Softbank's financial pressure at a time when the company faces headwinds in debt financing. Previous reports indicated that after facing opposition from some creditors, Softbank was forced to significantly scale back its plan for a margin loan secured by OpenAI shares, reducing the target from an initial $10 billion to $6 billion—a 40% cut.
Softbank's massive investments in AI, coupled with the rising debt incurred to fund them, have unsettled market observers. In March, S&P Global Ratings downgraded Softbank's credit rating outlook from "stable" to "negative," citing concerns that its investment in OpenAI could impair the Japanese company's liquidity and asset credit quality.
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