SoftBank posts $7 bn loss as US data centre costs mount amid AI concerns

The Japanese conglomerate's first net loss in nearly two years follows a reassessment of its US data centre procurement strategy amid concerns over AI investment returns

By Min Jeong Lee

 

SoftBank Group Corp. reported its first net loss in almost two years after swallowing a $3.7 billion writedown over its US data-center projects amid rising fears around the sustainability of AI growth. 

The Tokyo-based backer of OpenAI tumbled to a 1.12 trillion yen ($7.1 billion) loss in its fiscal second quarter after shouldering non-refundable advance payments related to power generation at projects including an ambitious Ohio data center push. Analysts on average expected a profit of 129 billion yen.

 

After reserving manufacturing capacity for power generation equipment for AI data center projects in the US, the company revised its procurement strategy. That follows a sharp revision in the global AI outlook after the victory of Democratic candidates running on anti-data-center platforms during the US midterm elections.

 

 

SoftBank founder Masayoshi Son has directed billions of dollars into AI-related hardware and applications, betting on a technology that he’s said will bring huge returns over the long-term. But it’s now fielding fears over the debt it’s taken on to finance its mounting AI bets that include cumulative investments of almost $65 billion in OpenAI and the acquisition of data-center operator DigitalBridge Group Inc.

 

The company had previously hurried to secure power-generation equipment for data centers in advance, Chief Financial Officer Yoshimitsu Goto said during an earnings conference Tuesday. “We’ve decided to conduct a thorough reassessment” including a review of SoftBank’s procurement strategy, he said.

 

“We need to watch closely” the impact of the US midterm elections on AI sentiment, he said. 

 

Declines in the stock prices of chipmakers Arm Holdings Plc and Intel Corp., as well as Korean e-commerce giant Coupang Inc., further dragged down SoftBank’s bottom line. The Vision Fund segment, which oversees stakes in hundreds of tech startups, logged a loss of 81.6 billion yen, compared with market expectations for a profit.

 

SoftBank’s own shares have plunged more than 50 per cent from their record high in June, and volatility in its stock price has been high as investors try to gauge the risks and opportunities around its AI investments. 

 

In the wake of the US midterms, investors were weighing a valuation as low as $1.1 trillion for Anthropic, down from a previously touted figure of $2 trillion, people familiar with the matter said. OpenAI raised about $11 billion at a $1.25 trillion valuation, after initially seeking $30 billion at a $1.4 trillion value, Bloomberg News reported.

 

Son’s reliance on debt markets to finance his expanding list of AI investments has also made SoftBank’s bonds especially sensitive and lifting its credit default swaps hit their highest in years. The company’s loan-to-value ratio stood at 15.9 per cent at the end of September, well below the 25 per cent threshold it’s set to ensure financial stability, Goto said.