Masa Son risks overcompensating for his AI misses
The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Refiles to add dropped word in paragraph one.
By Karen Kwok
LONDON, Dec 3 (Reuters Breakingviews) -“It may sound strange, but I think I was born to realise ASI,” SoftBank Group 9984.T CEO Masayoshi Son told shareholders in June, referring to his acronym for artificial super intelligence – a future computing technology that he believes will be 10,000 times smarter than humans. It’s not a new theme for the 67-year-old. Son has repeatedly mentioned artificial intelligence in earnings calls going back at least as far as 2010, according to a Breakingviews search of an LSEG database. It’s arguably surprising, then, that SoftBank sold its Nvidia NVDA.O shares too early and now seems late to the party with OpenAI. The risk is that Son overcorrects to make up for lost time.
Admittedly, Son’s $32 billion acquisition of Britain’s Arm ARM.O in 2016 now looks prescient. Shares in the company, which designs basic chip architecture, have surged since SoftBank sold about 10% in a 2023 initial public offering. Arm is now worth roughly $140 billion, buttressed by investors’ hopes that it will benefit from increased demand for its blueprints in data centres and other AI-related places. Son has also steadily poured cash into AI-related startups over the years, with the total adding up to $44 billion since 2018 according to PitchBook data. One recent example is Tempus AI, which analyses medical data and genes, and whose shares are three-quarters above their June IPO.
On the other hand, Son has missed out on the much steeper rise in chip behemoth Nvidia’s stock, despite owning some for years. He sold in 2019 for something like $3.6 billion, based on the most up-to-date valuation available at the time. The same stake would be worth about $165 billion today. Son has the opposite problem with ChatGPT-maker OpenAI: rather than cashing out early, he’s investing late. Including a planned employee share sale, SoftBank could soon have poured about $2 billion into Sam Altman’s group, based on news reports. But the $157 billion recent valuation implies that Son’s stake is tiny, at least compared with much earlier investors like Microsoft MSFT.O.
Even the apparent Arm win is still provisional. Its price tag is arguably inflated by the small number of shares available for public trading – about 12% of the company’s total, according to LSEG data. About 40% of the UK group’s revenue comes from royalties for smartphone chips, which doesn’t directly relate to AI for now.
The good news, from Son’s perspective, is that SoftBank has firepower. One binding constraint is the group’s leverage, measured by comparing net debt to the overall value of assets. The Japanese conglomerate likes to keep that number below 25% “in normal times”. In September it was 12.5%, in theory offering Son about $28 billion of headroom for a possible future spree, based on Breakingviews calculations using the company’s most recent reported asset values. He could spend more than that if he wanted to, for example by freeing up extra cash by offloading stakes in older portfolio companies. The Financial Times reported in May that Son was planning about $9 billion of new AI spending per year.
It seems likely that he’ll keep steadily investing in AI-related startups, while also encouraging his existing stable of portfolio companies to make use of the technology. But something bigger may also be in the works. One person familiar with Son’s thinking, and another who has spoken to SoftBank executives including Son this year, told Breakingviews that the billionaire is particularly interested in AI-related infrastructure, which usually means data centres and related hardware. Son is already dabbling. The company’s eponymous listed telecom subsidiary said in November that it would build Japan’s largest supercomputer using Nvidia’s latest gear, while also enhancing its mobile network to make it more suitable for AI uses like robotics and autonomous vehicles.
Another piece of the puzzle, according to a different person who has worked with Son in the past, is energy. Power is currently one of the key bottlenecks for AI. SoftBank already has a stake in SB Energy, a solar-power company that powers an Alphabet GOOGL.O data centre in Texas, and which Son could in theory use to complement future infrastructure investments. SoftBank and Apollo Global Management APO.N talked over the summer about setting up a greater-than-$20-billion fund to invest in data centres, chip plants, and other AI-related projects, Semafor reported citing people familiar with the matter, though the discussions subsequently cooled.
Other possibilities include backing potential rivals to Nvidia, with a view to easing the company’s grip on AI semiconductors. That would point towards startups like d-Matrix, or pouring more money into Graphcore, the previously troubled UK chip group that SoftBank bought earlier this year. Son also seems to have big plans for Arm. Japan’s Nikkei newspaper reported in May that the group wanted to design AI semiconductors and had already spoken to Taiwan Semiconductor Manufacturing 2330.TW about making them. Once up and running, Arm could spin that business off to SoftBank, according to the report.
Son’s history of backing multiple competitors in fast-growing fields, like ride hailing, offers another possible clue. The same logic would argue for a major investment in OpenAI’s rivals like France’s Mistral AI or the much younger Cohere of Canada, which also happens to be building a Japanese-language AI model with IT group Fujitsu. Finally, there are wildcards, like the 2023 idea of backing plans to create the “iPhone of artificial intelligence” with OpenAI and former Apple designer Jony Ive, as reported by the Financial Times last year.
Investors seem concerned about this scattergun approach. SoftBank’s shares have always traded at a discount to the paper value of its assets, but this value gap reached about 60% in mid-November, which according to Jefferies analysts is close to an all-time high. That lack of faith will be frustrating for Son. But given the lack of clarity on what he does next, it’s hardly surprising.
Follow @karenkkwok on X
CONTEXT NEWS
ChatGPT-owner OpenAI is allowing its employees to sell roughly $1.5 billion worth of shares in a new tender offer to Japan's SoftBank Group, Reuters reported on Nov. 27 citing two sources familiar with the matter.
SoftBank's billionaire CEO Masayoshi Son has been persistent in seeking a larger stake in the startup after investing in the last funding round, according to CNBC, which first reported the news.
The Microsoft-backed artificial intelligence startup raised $500 million from the Japanese conglomerate, according to a media report, in a $6.6 billion funding round in October at a valuation of $157 billion.
OpenAI employees will have until Dec. 24 to decide if they want to participate in the new funding round, Reuters reported, adding that the stock's offer price aligns with the company's last funding round. The investment will come from SoftBank's Vision Fund 2.
SoftBank's AI investments have spiked recently https://reut.rs/3ZyJ7l9
SoftBank has room for a debt-backed spree https://reut.rs/4ggXakT
Arm's post-IPO share-price surge https://reut.rs/4id9vIu
Editing by Liam Proud and Streisand Neto
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