SoftBank Q2 Profit Soars on OpenAI Bet, Sale of Nvidia Shares

SoftBank Group has reported a second-quarter net profit that more than doubled to 2.5 trillion yen ($16.6 billion).

Chief executive Masayoshi Son has bet big on OpenAI – well over $30 billion – while selling all of his company’s shares in Nvidia last month. And those moves have paid worthy returns so far, with the value of the ChatGPT-maker soaring this year.

OpenAI chief Sam Altman said last week that the group will top $20 billion in annualized revenue this year and he expects it will reach hundreds of billions by 2030.

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OpenAI has reportedly signed deals in recent months to build more than $1.4 trillion of infrastructure and data centres that it says will be needed to meet growing demand, according to CNBC. OpenAI currently has a valuation of about $500 billion, which is the largest ever for a private company.

For SoftBank, cash from the sale of its stakes in Nvidia and T-Mobile has meant more money for SoftBank to employ in its artificial intelligence-related investment spree, even as concerns mount of an “AI bubble” in which valuations overestimate the profits the technologies can generate.

SoftBank reported on Tuesday a second-quarter net profit that more than doubled to 2.5 trillion yen ($16.6 billion), driven by valuation gains in its OpenAI holdings.

Nvidia stake sold for $5.8bn

It has also stepped up fundraising activities, selling equity holdings, such as the remainder of its shares in Nvidia for $5.83 billion, as well as issuing bonds and taking out bridging loans.

SoftBank has been a repeat investor in Nvidia. It sold off its investment before the AI boom took off and then bought the chipmaker’s shares again before divesting in October to double down on its biggest investment bet, OpenAI.

Asked about the timing of the sale of the Nvidia stake, chief financial officer Yoshimitsu Goto said at a press briefing he should not comment, but added that as SoftBank’s investment in OpenAI was very large, the company had to use its existing assets to finance new investments.

“Son is a savvy investor, so selling the entire stake must mean that he is no longer optimistic about the share price,” said Wong Kok Hoi, founder and chief executive officer of APS Asset Management in Singapore. “Big tech companies may continue to invest heavily in GPU chips, but not at this year’s level for many years.”

Softbank’s second-quarter earnings coincide with a bull run in technology-related stocks that has sent its share price to record highs.

Stock value soared, but OpenAI spending also rising

SoftBank announced a four-to-one stock split to make its shares more accessible after they nearly quadrupled in value over the past six months.

As the wave of investment in artificial intelligence infrastructure, such as data centres, continues apace and frontrunners in AI development, such as OpenAI, project rapid growth, SoftBank has been a major beneficiary.

Nevertheless, there are growing concerns among investors about an “AI bubble”, where the enormous sums committed to capital investment by leading firms may not generate the high profits to justify the investments.

Losses are mounting at OpenAI, sources told Reuters in late October, although its valuation has risen steadily and sharply throughout the year.

“There are various opinions, but SoftBank’s position is that the risk of not investing is far greater than the risk of investing,” Goto said at the briefing in Tokyo.

In March, SoftBank agreed to lead a funding round of up to $40 billion in OpenAI at a valuation of $300 billion. In October, a source told Reuters SoftBank was among a consortium of investors acquiring $6.6 billion worth of shares from OpenAI employees at a higher valuation of $500 billion.

SoftBank’s total investment in OpenAI is expected to reach $34.7 billion by the end of December this year.

SoftBank’s Vision Fund unit posted an investment gain of 3.5 trillion yen, primarily from the group’s holding in OpenAI, which totalled 2.16 trillion yen for the quarter.

The results announced on Tuesday compared with a profit of 1.18 trillion yen in the same period last year, and were SoftBank’s best quarterly result since July-September 2022.

T-Mobile stake cut

The AI-related investments are SoftBank’s most ambitious since the launch of the Vision Fund vehicles in 2017 and 2019, and demand deep pockets.

Softbank sold its 32.1 million shares of Nvidia, including those held by the asset management subsidiary, in October and also sold part of its stake in T-Mobile for $9.17 billion.

Since the start of April, it has issued bonds in three currencies worth 620 billion yen, $2.2 billion and 1.7 billion euros ($1.98 billion), respectively.

It also took out a bridging loan of $8.5 billion for its investment in OpenAI and arranged a $6.5 billion bridging loan for its acquisition of semiconductor design company Ampere, which it has not yet drawn.

Founder and CEO Masayoshi Son is experienced in making leveraged bets on what he sees as transformative technologies, but his track record is mixed.

An early punt on Chinese e-commerce site Alibaba proved lucrative, but other bets have gone awry, such as backing shared office provider WeWork.