RPT-BREAKINGVIEWS-Masa Son’s OpenAI bet is conspicuously underhedged

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Karen Kwok

LONDON, Jan 29 (Reuters Breakingviews) - To Masayoshi Son, risk isn’t an unfortunate byproduct of technology investing. It's the main feature. The SoftBank 9984.T Group boss is doubling down on this philosophy by doubling down on Sam Altman's OpenAI. Reuters reported that Son's Japanese conglomerate is weighing a $30 billion investment into the artificial-intelligence lab, after handing the same amount to the same company last year. Other industry heavyweights - like Microsoft MSFT.O, Nvidia NVDA.O, Amazon.com and Sequoia Capital - seem to be flirting with multiple AI labs, thus hedging their bets somewhat. Son's singular behavior raises the stakes on an already financially stretched plan.

The Japanese billionaire's playbook has long revolved around giving charismatic founders shedloads of capital and encouraging them to think big. Sometimes it works, as with Alibaba's 9988.HK Jack Ma. Sometimes it doesn't, as with WeWork’s Adam Neumann. There are reasons to think that Altman may fall into the good pile: OpenAI’s growth seems unprecedented, with 900 million weekly ChatGPT users as of December. Annualised revenue was about $20 billion in December, finance chief Sarah Friar recently wrote. Yet profitability is still miles off and competition with rivals like Anthropic, Elon Musk's xAI and Alphabet's GOOGL.O Gemini is intense.

The technical race between these AI labs is tighter than Son’s strategy suggests. The widely watched Chatbot Arena leaderboard shows OpenAI first in reasoning, but Anthropic’s Claude and Gemini score better in other areas like coding, speed and flexibility. That may explain why Big Tech incumbents are backing multiple horses. Microsoft, long associated with OpenAI, has alongside Nvidia committed to invest a total of up to $15 billion in Anthropic, the Financial Times reported. The same newspaper said that venture outfit Sequoia, with shares already in OpenAI and xAI, may also put money into the Claude developer. Amazon also seems to be spreading its bets. By contrast, SoftBank’s focus is OpenAI, with smaller interests in players like Perplexity and Poolside. SoftBank even liquidated Nvidia shares to fund its recent OpenAI investment.

The danger, rather obviously, is that AI wins but OpenAI doesn't. So why does Son think Altman and ChatGPT are so special? One advantage is that OpenAI hit escape velocity first, in terms of user numbers, which may allow it to develop other products more effectively than rivals. Another is that Microsoft, something of a kingmaker given its resources and lock on enterprise customers, can’t afford to have OpenAI fail given the entanglements between the two companies. An 11% share-price drop on Thursday after disappointing earnings shows how much is riding on the AI story for the group run by Satya Nadella.

In any case, Son's firepower is hardly limitless. SoftBank's stated loan-to-value ratio hit 16.5% in the most recently reported quarter, close to a self-imposed 25% ceiling. Analysts at CreditSights suggest the real ratio may be higher after factoring in asset-backed finance and margin loans. That means funding the next $30 billion could be tricky. One possibility is that Son may have to sell more of Arm, his prized chip asset. That would bring some cash, but also make SoftBank's AI story even more dependent on Altman.

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CONTEXT NEWS

SoftBank Group is in talks to invest as much as an ​additional $30 billion in OpenAI, Reuters reported on January 27 citing a person familiar with ‌the matter.

The fresh investment would form part of a funding round that could raise ‌up to $100 billion for OpenAI, valuing it at about $830 ​billion, the report said.

In December, SoftBank said it had completed a $41 ⁠billion investment in OpenAI, giving it an 11% stake.

(Editing by Liam Proud; Production by Shrabani Chakraborty)

((For previous columns by the author, Reuters customers can click on KWOK/karen.kwok@thomsonreuters.com))