The Zhitong Finance App learned that the market value of the SoftBank Group may have shrunk by half from the peak in June. Investors' concerns about the sustainability of the company's large-scale artificial intelligence (AI) investments have intensified as borrowing costs rise.
Market capitalization falls short of peak value, and the sustainability of AI investment is being questioned
On Thursday, the Tokyo-based company's stock price fell 6.9% for a while, bringing the cumulative decline of 50% from the all-time high set on June 2. Earnings reports from major US tech companies failed to ease market anxiety. Four months ago, SoftBank briefly surpassed Toyota to become the largest company in Japan by market capitalization; today its market capitalization is around 24.7 trillion yen (about 157 billion US dollars), which is lower than Hitachi and Recruit Holdings.
US cloud computing service provider CoreWeave's bonds fell to a difficult level, revealing the financing risks of the entire industry, and fueling global concerns about AI spending.
“As investors increasingly scrutinize the financial health of AI-related companies, SoftBank's vulnerability is particularly prominent. This stems from the group's highly leveraged financial structure and rising borrowing costs,” said Kazuyuki Muramatsu, head of investment management at Nagomi Capital. He said that if global confidence in the AI growth story weakens, it may cause SoftBank Vision Fund to experience valuation losses, which in turn will drive up the cost premium for future financing.
CDS has risen to a four-year high, and dependence on debt financing exposes risks
The cost of insuring SoftBank's debt defaults has risen, and credit default swaps (CDS) rose to the highest level in nearly four years on Tuesday. As many of SoftBank's investments in the AI ecosystem — from infrastructure, energy to robotics — rely heavily on debt financing, CoreWeave's plight has dampened market confidence, and even stock investors previously concerned about the return on SoftBank's AI investment have been affected. SoftBank was the worst-performing constituent stock in the Nikkei Index this month, falling by more than 30%, erasing all gains since September.
Increasing competition among AI models also poses potential pressure. SoftBank has invested nearly $65 billion in OpenAI, and OpenAI is now facing shocks from Chinese competitors, which can provide products with comparable performance at lower prices.
In September of this year, SoftBank raised $11.1 billion by issuing the largest corporate junk bond in history to fund founder Sun Zhengyi's AI ambitions.