Tech sell-off raises risks for SoftBank’s massive AI bet

{"text":[[{"start":7.96,"text":"SoftBank founder Masayoshi Son’s huge bet on AI sent shares in the Japanese conglomerate soaring — but the stock has now come back down to earth with a thud."}],[{"start":17.64,"text":"The shares have fallen about 60 per cent since June. The Democrats’ crushing victory in the US midterm elections exposed political risks surrounding AI infrastructure, particularly in Texas, where SoftBank is planning some of its largest data centre developments."}],[{"start":32.92,"text":"The uncertainty affects the wider AI industry, but SoftBank, which reports half-year earnings on Tuesday, is particularly vulnerable. Son’s all-in strategy drove shares higher during the AI boom but magnifies the impact now that sentiment has turned."}],[{"start":47.8,"text":"Its major holdings have also fallen sharply, with UK chip designer Arm down about 60 per cent since June."}],[{"start":54.52,"text":"“With SoftBank, it’s all higher risk, higher reward,” said David Dai, an analyst at Bernstein. “You could say in the past that SoftBank was a more diversified investment company, but now all the investments are centred around the same ecosystem of AI . . . there is nothing defensive in there.”"}],[{"start":71.3,"text":"One of the most exposed businesses might be SB Energy, SoftBank’s US energy infrastructure company, whose planned listing at a $50bn valuation risks being put on hold, according to people familiar with the situation."}],[{"start":84.2,"text":"“What’s just happened in the US may mean testing how long SB Energy can go without going public,” said one of the people."}],[{"start":91.56,"text":"Analysts say newer AI infrastructure companies such as SB Energy are particularly vulnerable to tighter financing conditions. While established technology groups such as Meta and Google can fund their expansion, newer companies dependent on external financing face greater difficulties."}],[{"start":107.8,"text":"Any delay to SB Energy’s listing has wider consequences. The IPO’s progress is important to the group’s plan to list Roze, an AI and robotics play that Son wants to use in data centre development to prove Roze’s worth."}],[{"start":null,"text":"

"}],[{"start":122.12,"text":"Son has also been caught in geopolitical tensions with Beijing, where his attempted acquisition of ABB’s robotics business has been blocked by a national security review. SoftBank is trying to determine what went wrong and whether it can find a solution, such as carving out the China business."}],[{"start":135.48,"text":"Above these problems looms OpenAI, Son’s biggest bet, to which SoftBank has committed some $65bn. The ChatGPT maker is the final customer for large swaths of SB Energy’s plans."}],[{"start":150.32,"text":"Delaying OpenAI’s IPO until next year was already a concern for investors, but fears are escalating as rival Anthropic approaches its own potentially enormous listing."}],[{"start":161.08,"text":"A failure by Anthropic to list at an attractive valuation could raise doubts about OpenAI’s IPO. SoftBank is expected to participate in OpenAI’s upcoming funding round, which could value Sam Altman’s group at $1.25tn and boost the Japanese group — even if an eventual listing remains the goal."}],[{"start":181.8,"text":"Falling values of SoftBank’s holdings, particularly Arm, have pushed up its loan-to-value ratio — a key measure of financial leverage."}],[{"start":190.96,"text":"Analysts estimate the ratio has risen to between 18 and 22 per cent, from 13 per cent at the end of June, although it remains below SoftBank’s normal 25 per cent target. They estimate that could allow SoftBank another $10bn to $26bn in funding capacity."}],[{"start":null,"text":""}],[{"start":208.48,"text":"While some 80 per cent of SoftBank’s Arm stake may have been pledged as loan collateral, calculations based on June figures suggest only about 10 per cent of that available borrowing has been drawn down."}],[{"start":220.28,"text":"SoftBank faces a double risk from falling asset values and tighter credit markets as further declines in its holdings would quickly push up leverage."}],[{"start":230.04,"text":"SoftBank’s five-year credit default swaps — the cost of insuring against default on its debt — have increased sharply. Analysts say that investors have limited appetite to keep funding Son, particularly after SoftBank’s record $11bn junk bond issuance in September."}],[{"start":246.36,"text":"Despite the concerns, Son remains keen to keep pushing forward and is in talks to acquire Allied Universal — a security services group he thinks can be overhauled using AI."}],[{"start":256.74,"text":"Son hopes to partly finance the deal, said to be worth close to $30bn including debt, through a new vehicle provisionally called the Transformation Fund backed by deep-pocketed Gulf investors."}],[{"start":268,"text":"And despite the recent share price falls, one investor said SoftBank’s longer-term belief in AI had not changed."}],[{"start":274.44,"text":"“Do I think this will change Masa’s investment process? No, as he is investing for multiple decades,” said David Gibson at MFT Financial. “Does it give him caution? To some degree, probably. SoftBank might take the foot off the pedal — but it won’t change the direction.”"}],[{"start":291.48,"text":"SoftBank declined to comment."}],[{"start":298.52,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1794225832_5931.mp3"}