SoftBank Exits Nvidia Stake, Pivots to AI-Focused Investments

Article Summary

• SoftBank sells its entire stake in Nvidia for $5.8 billion.
• Significant profits supported by investments in AI such as OpenAI and Oracle.
• Ambitious investment plans in AI data centers and chip manufacturing.
• Challenges in financing new investments and valuation of AI companies.

SoftBank Group reportedly liquidated its entire stake in Nvidia (NVDA.O) in October, according to foreign media reports. This move comes as founder Masayoshi Son plans to invest heavily in the AI sector and build significant influence, having realized gains of approximately $5.8 billion from the share sale. SoftBank also announced a one-for-four stock split effective January 1.

At the end of March, the Tokyo-based company had increased its stake in Nvidia to approximately $3 billion. This investment, along with substantial profits from SoftBank's Vision Fund, contributed to a net profit of 2.5 trillion Japanese Yen (approximately $16.2 billion USD) for the group in the second quarter of the fiscal year ending in September, significantly exceeding the average analyst forecast of 418.2 billion Japanese Yen.

Masayoshi Son's investment portfolio currently includes some of the most prominent companies in the AI field, including OpenAI and Oracle (ORCL.N). Book gains from these investments contributed to a 78% surge in SoftBank's shares in the three months ending in September, the best quarterly performance since the fourth quarter of 2005.

Citi Group analyst Keiichi Yoneshima, in a research note prior to the release of financial reports, pointed out that the number of projects in which SoftBank has successfully recovered its investments is increasing, "therefore, we have raised our forecasts." Yoneshima set the target price for SoftBank shares at 27,100 Japanese Yen and linked his valuation model to the valuation of OpenAI, assuming that the future range for the valuation of ChatGPT's operator is between $500 billion and $1 trillion.

Masayoshi Son, 68, is actively betting on the investment boom in AI and the chip industry, while reducing investments in other areas. His ambitions have spurred a series of plans, including the Stargate data center project, as well as plans to invest $30 billion in OpenAI.

Son is also reportedly in talks with companies such as TSMC to explore participation in the construction of an AI manufacturing center in Arizona with a total cost of $1 trillion. In addition, SoftBank earlier this year considered acquiring the American chip manufacturer Marvell Technology Inc.

Financing new investments will be a major challenge, including OpenAI's investment of approximately $20 billion, and the plan to acquire chip design company Ampere Computing LLC for approximately $6.5 billion. There are also ongoing concerns in the market about the high valuations of AI companies and massive capital expenditures, and who will ultimately benefit from the large data centers and related infrastructure being built.

A research report published by the financial platform Finimize on Smartkarma pointed out that: "The previous simple logic is that buying SoftBank shares means obtaining Arm shares at a low cost in addition to a broader spread in the field of AI and technology. This strategy has exceeded expectations - SoftBank's share price has doubled, exceeding the slight increase in its net asset value (NAV)."

The report added: "But now this discounted space has essentially disappeared, and SoftBank is no longer a way to enter at a low price. Therefore, from this perspective, now may be the right time to sell and take profits."