SoftBank Boosts AI Investments Despite “Big Short” Investor’s Caution

SoftBank is divesting its entire stake in Nvidia (NVDA) – a move that initially raised eyebrows across Wall Street. The question isn’t if the timing coincides with concerns about Nvidia’s valuation, but rather reflects a strategic reallocation of capital to double down on its investment in the burgeoning field of generative AI, specifically OpenAI.

According to its recent earnings statement, the Japanese conglomerate sold 32.1 million Nvidia shares in October, netting a substantial $5.83 billion. While such a move could be interpreted as a sign of waning confidence in Nvidia’s impressive growth trajectory, sources familiar with SoftBank’s decision-making process suggest otherwise. The sale isn’t a reflection of doubt in Nvidia’s long term potentia, but a calculated shift to capitalize on perceived greater opportunities within OpenAI.

The move comes amid broader market discussions on AI valuations, further fueled by prominent voices like Michael Burry, known for his prescient bet against subprime mortgages prior to the 2008 financial crisis. Burry recently posted on X, cautioning that AI hyperscalers might be “understating depreciation” of AI chips, leading to artificially inflated earnings – a claim CNBC has not independently verified. Such concerns, while significant, appear to not be the driving force behind SoftBank’s strategic asset rearrangement.

Instead, the capital freed up from the Nvidia sale is reportedly earmarked for bolstering SoftBank’s existing $22.5 billion investment in OpenAI, a clear indication of where Masayoshi Son believes the future lies. This aggressive push into generative AI underscores SoftBank’s conviction that OpenAI, the creator of DALL-E and ChatGPT, is poised for even greater growth and success than previously anticipated. The company believes that generative AI will fundamentally transform numerous sectors, from software and content creation, to drug discovery and customer service and that additional capital investment is a strategic imperative.

For SoftBank, the decision reflects a prioritization of investment, rather than a retreat from the tech sector. By concentrating and deepening its investment in AI, particularly through OpenAI, the company aims to maintain a leading-edge position in what it sees as the next major technology wave, even if it means parting ways with a seemingly secure investment in Nvidia. This strategic shift highlights the intense competition and high-stakes gamble inherent in the dynamic AI landscape.

While Burry has promised to reveal “more details” on his concerns regarding AI accounting practices later this month, it appears unlikely to sway Son from his current course. SoftBank’s strategic maneuver is an aggressive bet on the transformative power of generative AI.