SoftBank's shares slid as much as 10% on Wednesday after the $5.8 billion sale of its stake in Nvidia highlighted the growing funding demands it faces to bankroll its "all-in" bet on ChatGPT creator OpenAI and other investments.
The conglomerate needs to fund a $22.5 billion follow-on investment in OpenAI, is acquiring chipmaker Ampere in a $6.5 billion deal and has agreed to buy the robotics business of Swiss group ABB for $5.4 billion.
Analyst Mary Pollock at CreditSights estimates SoftBank has committed to at least $41 billion in recent spending on investments and purchases. Its cash position totalled 4.2 trillion yen ($27.86 billion) at the end of September.
SoftBank's cash needs in the current quarter are "substantial", Pollock wrote in a note.
"Though SBG's liquidity position has improved relative to when it issued its hybrids in October, we still estimate it will need to be proactive funding its recent (more than) $41 billion investment spend," she wrote.
The share drop also comes amid investor concerns about the risk that rapidly rising tech valuations are overextended, even as SoftBank moves to deepen its exposure to the AI sector.
SoftBank said on Tuesday it sold the Nvidia stake and also sold T-Mobile US shares for $9.2 billion between June and September.
SoftBank's founder and CEO Masayoshi Son, who is known for his risk appetite and aggressive investing style, is bullish on the outlook for artificial intelligence.
"I do not think SoftBank has a negative view on Nvidia," said Rolf Bulk, analyst at New Street Research.
"The position was large, liquid, and easy to monetise, and likely SoftBank sees even more upside in reallocating capital to OpenAI."
In June, Son said corporate winners grow stronger over time, scooping up profits, and made a comparison with firms such as Alphabet's Google and Amazon.
SoftBank's shares have had a blistering run, more than quadrupling between April and October, but have pared gains in recent days.
On Wednesday, the shares recouped some of their earlier losses and ended the day down 3.46%. Shares in Nvidia and chip designer Arm, which is controlled by SoftBank, fell 3% overnight.
FUNDING NEEDS
In addition to selling shares, SoftBank has issued bonds and taken out loans to support its investments.
SoftBank took out a $8.5 billion loan for its OpenAI backing and arranged a $6.5 billion bridging loan for its acquisition of Ampere, which it has not yet drawn.
Since the start of April, SoftBank has also issued bonds in three currencies worth 620 billion yen ($4.11 billion), $2.2 billion and 1.7 billion euros ($1.98 billion), respectively.
SoftBank's loan-to-value ratio, a measure of indebtedness, was 16.5% at the end of September, down from 17% in the previous quarter. However, SoftBank CFO Yoshimitsu Goto said at an earnings briefing on Tuesday that the end of September level was "actually a bit too safe".
Despite the increasing overvaluation concerns, Navneet Govil, CFO at SoftBank's Vision Fund investing arm, emphasised that growing demand for AI services validates their investment thesis.
"What's different between the dotcom boom and today is that AI companies are generating meaningful revenues," Govil told Reuters after its earnings release on Tuesday.
"There's a lot of talk about capex spend, but it's actually driven by demand," he said.
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