SoftBank Group has announced a significant commitment to invest $15 billion in Stargate, a joint venture with Oracle and OpenAI. This ambitious project aims to bolster AI data center capacity in the United States with an investment of up to $500 billion. Despite the substantial financial pledge, SoftBank reported a surprising $2.4 billion loss in the third quarter, largely due to a decline in its Vision Fund's holdings, including Coupang and other tech companies.
SoftBank's Chief Financial Officer, Yoshimitsu Goto, revealed that investment activities had slowed but expressed optimism for a recovery by 2025 as the Stargate initiative progresses. Moreover, SoftBank plans to focus its investment exclusively on equity. As the company strategically positions itself within the AI infrastructure sector, it faces questions about funding these ventures, especially given the recent financial setbacks.
The Vision Fund 2 portfolio has suffered significantly and is still grappling with recovery. The fund has incurred a cumulative loss of $22.2 billion since its inception in 2019. SoftBank recorded a net loss of 369.2 billion yen ($2.4 billion) in the October-December quarter. This loss was driven by unrealized valuation markdowns in entities such as South Korea's Coupang, Chinese ride-hailing firm Didi Global, and Norway's AutoStore Holdings.
SoftBank's cash reserves have dwindled, dropping from 6.2 trillion yen in March to 4.7 trillion yen by the end of December. This decline raises concerns about how founder Masayoshi Son plans to finance the tech giant's ambitious AI investments amidst soaring valuations for companies like Nvidia. However, despite these challenges, SoftBank's total returns, including share gains and dividends, have risen over 11% across the last year, outperforming the Nikkei 225 index's 4% return.
The investment landscape for SoftBank has been tumultuous. The last aggressive investment phase concluded in 2022 when rising interest rates severely affected valuations for high-growth startups, prompting a defensive strategy to mitigate losses. Yet, SoftBank remains committed to expanding its influence in technology through strategic stakes in startups via its Vision Funds.
Yoshimitsu Goto elaborated on the financing strategy for Stargate, indicating that project finance would be the primary funding mechanism. This approach, often employed in energy infrastructure projects, will attract debt financing from investors such as banks and insurance companies.
"Our goal to raise net asset value hasn’t changed. One way to climb this mountain is to invest in OpenAI, others are through Stargate and Cristal. We’ll keep looking for new trailheads.” – Yoshimitsu Goto
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