SoftBank loses $7 bn as US data center expenses rise due to AI
SoftBank Group Corp. has announced its first net loss in nearly two years, attributed to a $3.7 billion writedown related to its US data-center initiatives, coinciding with increasing concerns regarding the sustainability of AI growth. The Tokyo-based backer of OpenAI experienced a significant decline, reporting a loss of 1.12 trillion yen in its fiscal second quarter. This downturn was attributed to non-refundable advance payments associated with power generation for various projects, including an ambitious initiative for a data center in Ohio. Analysts, on average, anticipated a profit of 129 billion yen. Following the allocation of manufacturing capacity for power generation equipment intended for AI data center initiatives in the United States, the company has adjusted its procurement strategy. That follows a significant adjustment in the global AI perspective after the success of Democratic candidates campaigning on anti-data-center platforms during the US midterm elections.
SoftBank founder Masayoshi Son has allocated billions of dollars toward AI-related hardware and applications, wagering on a technology that he asserts will yield substantial returns in the long run. However, it is currently addressing concerns regarding the debt incurred to support its increasing investments in artificial intelligence, which encompass total expenditures nearing $65 billion in OpenAI and the purchase of data-center operator DigitalBridge Group Inc. The company had previously hurried to secure power-generation equipment for data centers in advance, Chief Financial Officer Yoshimitsu Goto said during an earnings conference Tuesday. “We’ve decided to conduct a thorough reassessment” including a review of SoftBank’s procurement strategy, he said. “We need to watch closely” the impact of the US midterm elections on AI sentiment, he said.
Declines in the stock prices of chipmakers Arm Holdings Plc and Intel Corp., along with Korean e-commerce giant Coupang Inc., further impacted SoftBank’s bottom line. The Vision Fund segment, responsible for managing investments in numerous tech startups, reported a loss of 81.6 billion yen, contrary to market expectations for a profit. SoftBank’s own shares have experienced a decline exceeding 50 percent from their peak in June, with significant volatility in its stock price as investors assess the associated risks and potential opportunities linked to its AI investments. In the aftermath of the US midterms, investors are assessing a valuation for Anthropic that could be as low as $1.1 trillion, a significant decrease from the previously estimated figure of $2 trillion, according to sources.
OpenAI secured approximately $11 billion at a valuation of $1.25 trillion, following an initial attempt to raise $30 billion at a $1.4 trillion valuation, as reported. Son’s dependence on debt markets to fund his growing portfolio of AI investments has rendered SoftBank’s bonds particularly vulnerable, resulting in its credit default swaps reaching their highest levels in years. The company’s loan-to-value ratio was recorded at 15.9 per cent at the conclusion of September, significantly beneath the 25 per cent benchmark established to maintain financial stability, Goto stated.
