SoftBank returns to profit in Q3 as OpenAI bet drives valuation boost

SoftBank Group Corp sprang back to a quarterly profit after investment gains from OpenAI neared $20 billion, a promising start for one of Masayoshi Son’s signature gambles alongside ByteDance Ltd. and Alibaba Group Holding Ltd.

 

The Tokyo-based company has invested about $34.6 billion in OpenAI, accumulating an 11 per cent stake as of December, and has been in talks to invest as much as $30 billion more in a round that would value the startup at about $750 billion to $830 billion. As of December, SoftBank’s investment gain on OpenAI stood at $19.8 billion, the company said Thursday.

 

SoftBank’s bet in OpenAI is based on its visibility into the startup’s technology and business model, as well as communication with top management, SoftBank Chief Financial Officer Yoshimitsu Goto said. 

 

 

“We are investing in OpenAI with high conviction that the company will lead in developing AI,” he said. Regarding further commitments to the startup, “nothing concrete has been decided,” he said. 

 

OpenAI now represents one of SoftBank’s biggest holdings, alongside a roughly 90 per cent stake in chip designer Arm Holdings Plc, even as investments elsewhere slow. That’s tethered the Japanese company’s shares to ChatGPT’s relative performance against rivals Google’s Gemini and Anthropic’s Claude.

 

SoftBank is “the only real way to directly play OpenAI in today’s public markets,” BTIG analyst Jesse Sobelson wrote in a note ahead of Thursday’s earnings, estimating that the startup represents 30 per cent of SoftBank’s net asset value. “Next OpenAI capital raise could spur re-mark of SoftBank equity ownership” and serve as a catalyst, the note said. BTIG said it expects to receive or seek compensation from SoftBank for investment banking services in the next three months.

 

For the December quarter, SoftBank reported a net income of ¥248.59 billion ($1.6 billion) in its fiscal third quarter, compared with the average analyst estimate of about ¥857 billion. It was the tech investor’s fourth straight quarterly profit — a first for SoftBank since 2021 — and came despite investment losses on share price drops in Coupang Inc.

 

“SoftBank increasingly trades on OpenAI sentiment so what the company has to say about an additional top-up in the next funding round and how that can be funded will attract interest,” said Bloomberg Intelligence analyst Kirk Boodry. “But, yes, concentration risk in both Arm and OpenAI are concerns.” 

 

Over the past months, SoftBank has stepped up investments as Son seeks to play a bigger role in shaping the future of AI. 

Last month, the company signed a $3 billion deal to buy private equity firm DigitalBridge Group Inc., whose portfolio includes digital infrastructure companies such as AtlasEdge, DataBank, Switch and Vantage Data Centers. Prior to that announcement, SoftBank bought US chip designer Ampere Computing LLC for $6.5 billion and announced a $5.4 billion acquisition of ABB Ltd.’s robotics unit.  

SoftBank, which has pledged to shepherd a $500 billion Stargate push alongside OpenAI, Oracle Corp. and Abu Dhabi’s MGX to build data centers in the US, separately pursued a deal of around $50 billion for data center operator Switch, but the talks were halted earlier this year. 

 

To finance some of the acquisition costs, SoftBank on Thursday said it divested more of its T-Mobile US Inc. holding and increased the amount of its margin loan based on its mobile unit SoftBank Corp. shares to ¥1.2 trillion. The company has already unloaded its entire Nvidia stake for $5.8 billion and expanded a margin loan using its Arm shares.

 

Although early to invest in AI technologies, Son has yet to cement himself at the forefront of a global rush to build the semiconductors and other hardware to support artificial intelligence. Instead, much of the spotlight has gone to a small circle of chipmakers including Nvidia Corp. and Taiwan Semiconductor Manufacturing Co.

 

SoftBank’s accelerating pace of investments, along with a sharp drop in the value of Arm shares at the end of last year, are heaping pressure on its creditworthiness, S&P Global Ratings warned last month.

 

SoftBank will stick to its policy of keeping enough liquidity on hand to cover two-years’ worth of bond repayments, Goto said. The company’s loan-to-value ratio stood at 20.6 per cent , below the 25 per cent threshold it’s imposed on itself, he said.

 

“In theory, we might be able to execute investments of considerable scale,” Goto said. “But just because something is possible to finance doesn’t mean we should do it. As an investment company, it is our responsibility to firmly maintain financial soundness and safety.”

--With assistance from Vlad Savov.

(Updates to add analyst commentary and chart. A previous version corrected the spelling of BTIG.)

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