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Tag: SoftBank

  • SoftBank borrows $40 billion to invest in OpenAI

    SoftBank borrows $40 billion to invest in OpenAI

    Masayoshi Son is back at the game he knows best: the highest stakes game. After a period of relative quiet and licking his wounds after Vision Fund’s turbulence, the SoftBank leader is once again reaching out for aggressive debt financing to fund his most ambitious project yet – domination of the OpenAI ecosystem.

    According to reports from Bloomberg, the Japanese conglomerate is in advanced talks to raise a bridge loan of up to $40 billion. Major financial institutions, led by JPMorgan, are involved in the process. The facility, with a planned 12-month maturity, is expected to serve as capital fuel for further expansion in the artificial intelligence sector. While the terms of the financing may yet change, the move itself signals Son’s return to the ‘all in’ strategy that defined Silicon Valley’s investment landscape years ago.

    The centre of gravity for SoftBank has become OpenAI. The Japanese company, which at the end of last year controlled around 11% of the ChatGPT developer, is set to play a key role in the upcoming giant funding round. With a total of $110 billion, SoftBank is expected to put $30 billion on the table, lining up with giants such as Nvidia and Amazon. This concentration of capital, with OpenAI’s valuation reaching $840 billion, suggests that Son sees Sam Altman’s company as an entity of scale comparable to the world’s largest technology corporations.

    However, the question of the time horizon is moot. The short-term nature of the bridge loan points to preparations for a specific liquidity event. OpenAI is already laying the groundwork for an IPO, with optimists indicating that an IPO could value the company at up to a trillion dollars. The debt financing allows SoftBank to maximise its share of this potential growth without immediately committing its own cash reserves.

    In this strategic jigsaw, SoftBank ceases to be just a venture capital fund and becomes a key architect of AI infrastructure. If Son’s bet succeeds, SoftBank will secure its position as the most important external shareholder in a company that is defining a new technological era. However, if OpenAI’s valuation does not live up to market expectations, the burden of the 40-billion-dollar debt could become a major operational challenge for the Japanese giant. At this point, however, Masayoshi Son seems convinced that second place does not exist in the race for artificial intelligence.

  • SoftBank sells Nvidia to fund investment in OpenAI

    SoftBank sells Nvidia to fund investment in OpenAI

    SoftBank’s second-quarter financial results show that Masayoshi Son’s desperate pursuit of AI dominance is starting to yield paper profits. The Japanese investment giant doubled its net profit to 2.5 trillion yen (US$16.6 billion), thanks almost entirely to a jump in the valuation of its biggest bet: OpenAI. This result frees up billions for further investment in artificial intelligence, while fuelling fears of a growing speculative bubble.

    Son’s strategy is simple: bet everything on one horse. To fund this manoeuvre, SoftBank is aggressively raising cash. The company sold its remaining stake in T-Mobile for US$9.17 billion and, most significantly, exited Nvidia entirely, cashing in US$5.83 billion. It’s a move that has analysts puzzled. SoftBank is divesting shares in a key AI infrastructure provider to double its investment in the language model leader.

    CFO Yoshimitsu Goto said the investment in OpenAI was so large that the company “had to leverage existing assets”. Nvidia’s sale suggests that Son no longer believes GPU chip prices will continue to rise so rapidly.

    The scale of SoftBank’s commitment to OpenAI is unprecedented. It is expected to reach US$34.7 billion by the end of the year. In March, SoftBank led a funding round at a valuation of US$300 billion; in October, it was already in a consortium buying employee shares at a valuation of US$500 billion. Vision Fund alone reported a 3.5 trillion yen investment gain, of which 2.16 trillion came solely from OpenAI shares.

    The market is reacting euphorically. SoftBank’s shares have almost quadrupled in the last six months, forcing the company to announce a stock split (4:1). Investors see SoftBank as a high-risk vehicle for OpenAI.

    However, there are growing concerns about whether these valuations are supported by fundamentals. Reuters sources reported that losses at OpenAI are widening, despite impressive revenue growth. SoftBank, however, remains unmoved. “SoftBank’s stance is that the risk of not investing is much greater than the risk of investing,” Goto commented. For Masayoshi Son, whose balance sheet includes the spectacular success of Alibaba and the equally high-profile failure of WeWork, this is another attempt to pick out the technology that will change the world.

  • The era of cheap AI is over – SoftBank is not investing $30bn in philanthropy

    The era of cheap AI is over – SoftBank is not investing $30bn in philanthropy

    SoftBank’s decision to approve the next tranche of funding for OpenAI, topping up a mammoth $30bn investment, is much more than just capital news. It is a symbolic end to the first romanticised era of artificial intelligence. The key news lies not in the amount itself, but in the condition on which it is conditional: the corporate restructuring of OpenAI to pave the way for an eventual initial public offering (IPO).

    This condition is the starting signal for the inevitable commercialisation. And commercialisation, in a world as capital-intensive as AI, means one thing: the end of subsidised pricing.

    Managers must face the new reality. This news heralds the end of cheap experiments with AI. The era of hard business is beginning, in which a market price will have to be paid for access to the most advanced models. And that price will grow.

    From non-profit mission to Wall Street pressure

    We need to understand the fundamental change that is taking place at OpenAI and, behind it, in the market as a whole. Founded as a non-profit research lab with a mission “to ensure that artificial general intelligence (AGI) benefits all of humanity”, OpenAI has long since created a hybrid capped-profit structure to accept capital.

    However, the demand for restructuring under an IPO is a whole new chapter. The stock market and quarterly reports to shareholders do not tolerate ‘limited profits’. The goal of a public company becomes to maximise shareholder value.

    Investors like SoftBank are not putting up $30 billion for philanthropic reasons. They expect a return, and a return commensurate with the astronomical risk. This return must come from customers. The billion-dollar cost of research, the purchase of Nvidia processors and salaries for top talent, hitherto partly subsidised by investors and partners (such as Microsoft), will now be fully passed on to the market.

    In short: the days of AI ‘on credit’ are coming to an end. The bill has just arrived, and corporate users will pay.

    Domino risk: how the market leader dictates prices

    The fundamental business risk is not just that the prices of one*supplier – OpenAI – will rise. The risk is the knock-on effect.

    OpenAI is the undisputed market leader. The GPT-4 and its successors set the global performance standard (benchmark). In economics, this is called price leadership. When the market leader, dictating quality, raises prices, it sends a powerful signal to the rest.

    Competitors such as Google (with its Gemini model) and Anthropic (with its Claude model) face exactly the same gigantic costs of research, computing power and talent. The current ‘price war’ in the AI market is artificial – it is a fight to gain market share, not a reflection of real costs.

    As soon as OpenAI, feeling pressure from new investors and preparing for an IPO, raises prices for tokens or API access, it will thereby give ‘permission’ to the entire market. Google and Anthropic will have no business reason to keep prices lower when they can follow the lead and finally start making money from their expensive models.

    For business, this means that the entire market for ‘AI brains’ – regardless of the chosen supplier – will become more expensive.

    AI as a growth operating cost

    AI should not be viewed in terms of a one-off IT project or an experiment in the innovation department. AI is rapidly moving from an investment budget (CAPEX) to an operating budget (OPEX). It becomes a variable cost, directly linked to the scale of operations, just like electricity consumption or the cost of cloud hosting.

    And therein lies the strategic threat. What does it mean for a company if a key operating cost, on which new products, customer service and internal efficiency depend, is not only high but volatile and rising?

    Firstly, it directly hits profitability and margins. Business models based on the assumption of cheap access to AI can become unprofitable from quarter to quarter. A product that was profitable at X price per million tokens may start generating losses after a 50% increase in API prices.

    Secondly, it nullifies budgetary predictability. How is management supposed to plan multi-year digital transformation strategies, basing key processes on a technology whose cost may rise uncontrollably? This introduces chaos into financial planning and resource allocation.

    Third, it creates a painful conflict between innovation and cost control. Leaders will be faced with a choice: do we continue to use the best, latest (and now most expensive) models to maintain our competitive advantage or, in order to save margins, do we have to ‘go lower’ – to cheaper, older or less efficient models, thereby consciously reducing the company’s innovation potential?

    Dependency risk management

    This is no longer a technical problem that can be delegated to the IT department. This is a fundamental business risk that must be managed at board level.

    The pressure to commercialise OpenAI is a signal to every leader that an all-on-one vendor lock-in strategy is dangerous in the AI era. Making key business processes dependent on the APIs of a single company that is just embarking on a profit-maximising path could prove to be a strategic mistake.

    SoftBank’s investment is a milestone. It ends the trial period. The full price will have to be paid for access to the AI revolution. The management’s job is to make sure this bill does not ruin the company’s business model.

  • SoftBank invests in ABB robotics. The $5.4bn acquisition is changing the automation market

    SoftBank invests in ABB robotics. The $5.4bn acquisition is changing the automation market

    SoftBank is once again betting on robotics. The Japanese conglomerate has announced that it will acquire the robotics division of Switzerland’s ABB for $5.4 billion. This is the largest deal for Masayoshi Son’s group since the collapse of the Vision Fund and a clear signal that SoftBank is back on the investment offensive – this time at the intersection of artificial intelligence and industrial automation.

    ABB had originally planned to spin off its robotics division and list it on the stock market, but new CEO Morten Wierod decided to sell the entire business. This is the first major move under his leadership and an attempt to clean up the portfolio, where the electrification and process automation business had higher margins than robot manufacturing. The ABB Robotics division today employs around 7,000 people and generates annual revenues of $2.3 billion, accounting for around 7 per cent of group turnover.

    Wierod explains the decision with the belief that the market is entering a new era of robotics based on artificial intelligence – and that SoftBank is best placed today to capitalise on this trend. “ABB and SoftBank share a vision of a world where AI and robotics create a new industrial quality. Together, we can shape this future,” he said in the release.

    For ABB, the sale marks not only a change in strategy, but also a cash injection of more than $5 billion. The funds are to be used in line with its capital allocation policy: to invest in organic growth, automation acquisitions and shareholder returns. The company’s shares rose 3 per cent in Zurich pre-session trading after the deal was announced.

    For SoftBank, on the other hand, it marks the return of one of its most ambitious projects – the combination of robotics and artificial intelligence in so-called ‘Physical AI’. The group’s portfolio already includes the humanoid Pepper, Berkshire Grey and AutoStore, but none of these investments have yet delivered a breakthrough on the scale of Masayoshi Son’s announcement. The acquisition of ABB Robotics could change this dynamic, giving SoftBank access to a global manufacturing network and advanced industrial technologies.

    However, the challenges remain significant. According to the International Federation of Robotics, the number of new industrial robot installations in 2024 is expected to reach 542,000 units – almost the same as the year before. In Asia, which accounts for three-quarters of demand, companies are holding back investment due to economic uncertainty. SoftBank is therefore buying assets at a time when the market is decelerating, hoping for a rebound driven by automation and AI.

    If the strategy succeeds, SoftBank could become a key player in building a new segment of the economy – combining intelligent models with physical machines. If not, the $5.4 billion deal could go down in history as another example of betting too early on the future.

  • SoftBank is back in the game. Masayoshi Son puts it all on artificial superintelligence

    SoftBank is back in the game. Masayoshi Son puts it all on artificial superintelligence

    After years of a more cautious investment policy, SoftBank is once again attracting industry attention. Masayoshi Son, the legendary founder and CEO of the Japanese group, has announced that his goal is to make SoftBank the global platform leader for so-called artificial superintelligence (ASI) within a decade. It’s a bold statement, especially as ASI is a technology that – at least in theory – is expected to outperform human intelligence by up to 10,000 times.

    In the background of this vision is SoftBank’s return to aggressive investments. After the painful experience with WeWork and the repricing of its Vision Fund portfolio, the group has rebuilt its position with, among other things, Arm’s successful IPO in 2023 and an increase in the value of its shares. Now Son is once again betting on disruptive technologies – and doing so with aplomb.

    SoftBank has already spent more than $30bn on shares in OpenAI and is planning further investments of up to $40bn. Added to this is the acquisition of Ampere, a chipmaker, for $6.5bn – a strategic move in view of the growing importance of hardware infrastructure for AI development. These moves show that Son wants SoftBank to play a role not only as an investor, but as an organiser of the entire future intelligence ecosystem.

    While Son’s vision may seem futuristic, its market context is concrete. The value of AI companies is growing at a record pace. Nvidia – once partly controlled by SoftBank – is now valued at more than $3 trillion and dominates the AI chip market. OpenAI, backed by Microsoft among others, is on track to go public. Son does not want to miss another opportunity.

    SoftBank’s return to being an active player in the new technology market is not risk-free, but it may once again push the boundaries of what we consider viable in investing in the future.