SoftBank posted a first-quarter profit that surpassed market expectations, largely propelled by a substantial gain from its investment in Intel. The Japanese conglomerate also saw its Vision Fund division benefit from an increased valuation of ByteDance, the parent company of TikTok.
For the fiscal first quarter ending in June, SoftBank reported a net profit of 347.3 billion Japanese yen (approximately $2.2 billion). This figure significantly exceeded the 120.23 billion yen predicted by analysts polled by LSEG. However, this represents an approximate 18% decrease compared to the same period last year.
A notable contributor to SoftBank’s performance was a 1.3 trillion yen gain derived from its stake in U.S. chip manufacturer Intel. This boost stemmed from SoftBank’s roughly $2 billion investment in Intel made last year. The company’s investment division, distinct from the Vision Fund, consequently recorded segment profit of 1.05 trillion yen. Intel’s stock has experienced remarkable growth, surging nearly 400% over the past twelve months, underscoring the strategic acumen behind SoftBank’s capital allocation.
The Vision Funds, which encompass a diverse portfolio of technology investments including stakes in OpenAI and ByteDance, reported a collective $1.7 billion increase in value during the quarter. This positive momentum was primarily driven by a $2.2 billion appreciation in SoftBank’s holdings in Chinese tech giant ByteDance, which effectively counteracted valuation declines in other portfolio companies such as PayPay. Despite this overall gain, the Vision Funds segment posted a profit of 5.4 billion yen, a notable decrease from the 451.4 billion yen recorded a year prior. SoftBank indicated no significant gain or loss from its investment in OpenAI during the period. This contrasts sharply with the previous quarter, where SoftBank’s Vision Funds recorded an impressive nearly $20 billion gain, overwhelmingly attributable to its stake in OpenAI.
**OpenAI Takes a Backseat Amidst Evolving AI Landscape**
SoftBank has made a substantial commitment to OpenAI, pledging over $60 billion in investment, which is expected to result in approximately 13% ownership of the artificial intelligence research lab. The company confirmed that $55 billion of this commitment has already been deployed.
Despite this significant investment, SoftBank has not recognized any investment gains or losses related to OpenAI in the current reporting period. This comes at a time when the AI sector is experiencing intensifying competition. OpenAI faces challenges from rivals like Anthropic, major cloud providers such as Amazon, and a growing number of open-source initiatives emerging from China. Furthermore, enterprises are increasingly scrutinizing their AI expenditure.
Sources familiar with the matter indicate that SoftBank has not encountered any new information that would necessitate an adjustment to the valuation of its OpenAI investment. The company’s perspective is that the emergence of new players in the AI space reflects the expansive growth potential of the market, and the competitive dynamics are not a primary concern for the Vision Fund team.
In a significant development, OpenAI confidentially filed for an initial public offering in June, signaling its readiness to enter the public markets. While SoftBank is anticipated to divest a portion of its OpenAI holdings upon its IPO, it is not expected to be a “significant” part of its overall stake.
**Chip Sector Pressures Profitability**
SoftBank has strategically positioned itself to capitalize on the artificial intelligence revolution through investments in a wide array of companies, including AI research labs like OpenAI and semiconductor developers such as Arm. However, investors are now applying greater scrutiny to AI spending by technology firms, demanding demonstrable returns on these investments. SoftBank’s stock price has experienced a decline of approximately 34% from its June peak, reflecting investor apprehension regarding the company’s continued ability to fund its ambitious ventures and concerns over its significant portfolio concentration in Arm and OpenAI.
The company’s AI computing segment incurred a loss of 200.8 billion yen, a wider deficit than the 32.4 billion yen loss reported in the corresponding quarter of the previous year. This segment encompasses SoftBank’s investments in chip companies, including Arm, Graphcore, and Ampere. SoftBank attributed the deterioration in profit to increased research and development expenditures within these portfolio companies.
Earlier this year, SoftBank CEO Masayoshi Son expressed confidence to CNBC, stating that he does not believe the company is overexposed to OpenAI, which represents around 20% of SoftBank’s net asset value. Son has repeatedly characterized the AI revolution as being exponentially larger than the dot-com boom, likening its current stage to the nascent beginnings of the internet era. He underscored the transformative nature of AI, describing it as the most significant technological revolution and realization humanity has ever experienced.
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