Up to 10% decreased share of SoftBank Group, after the tech investor pulled out of the chipmaker artificial intelligence Nvidia, which spooked investors who were already nervous about rising tech sector valuations.
Shares in the Japanese company hit a one-month low in Tokyo after it revealed on Tuesday that it had sold its entire stake in the world’s most valuable company for $5.8 billion to help fund future investments in artificial intelligence. The drop came despite SoftBank’s better-than-expected quarterly results, which were largely supported by its OpenAI stake. Nvidia shares fell 3% in US trading.
SoftBank stock remains one of the beneficiaries of an investment frenzy that has driven valuations of top artificial intelligence players to record highs. This market euphoria has in turn fueled concerns about whether an industry bubble is forming.
SoftBank’s exit from Nvidia coincides with a debate over whether spending by major tech companies, from Meta Platforms Inc. to Alphabet Inc. expected to exceed $1 trillion in the coming years, will yield commensurate returns. Some investors are worried about the Japanese company’s growing exposure to OpenAI at the expense of established cash cows like Nvidia.
“The company appears to have sold Nvidia and bet everything on OpenAI, and investor views on this move are mixed,” said Tomoichiro Kubota, senior market analyst at Matsui Securities. “Given the significant increase in its share price, profit-taking by investors who are wary of OpenAI’s ability to achieve stable monetization in the future has gained the upper hand” for today.
Wednesday’s massive stock sell-off comes in the broader context of SoftBank’s ambitions to enter the AI narrative: a slew of expensive forays into fields from chipmaking to data center construction. Founder Masayoshi Son has cut jobs to fund visible projects, which include Stargate data centers with OpenAI and Oracle Corp., and plans to develop an artificial intelligence chip with Arm Holdings Plc.
His company wants to become a leading player in this growing ecosystem, with plans to take stakes in industry powerhouses from OpenAI to US chip designer Ampere Computing. On Tuesday, SoftBank executives dodged questions about whether the industry was fueling an AI bubble and said the stake sale was a necessary financing measure that had nothing to do with Nvidia’s prospects.
“I can’t say whether we’re in an AI bubble or not,” Chief Financial Officer Yoshimitsu Goto said during a press conference. SoftBank sold Nvidia “so the capital can be used for our financing,” he added, without elaborating.
SoftBank has sold Nvidia once before, in 2019. The company resumed buying small stakes in the US company in 2020 — two years before the advent of ChatGPT sparked a historic rally. It revealed it increased its stake in the US chipmaker to around $3 billion in late March. SoftBank has done well that way alone: Nvidia has gained more than $2 trillion in market value since then.
That rise, along with its investment in OpenAI, helped prop up SoftBank’s earnings. The Japanese company reported a net profit of 2.5 trillion yen ($16.2 billion) in the second quarter of the fiscal year. OpenAI’s value has grown by $14.6 billion since SoftBank invested, Goto said.
Son’s company now has a portfolio that includes some of the most sought-after names in the industry globally, including China’s ByteDance Ltd. and Perplexity AI Inc. Those stakes boosted SoftBank’s stock gains and helped its share price rise 78% in the quarter ended in September — its best such performance since the December 2005 quarter.
The challenge going forward will be balancing the funding behind a plethora of deals, as well as any new initiatives Sean may take on.
The billionaire’s efforts, which include a potential $1 trillion artificial intelligence manufacturing center in Arizona, have seen him woo US President Donald Trump, as well as the heads of Taiwan Semiconductor Manufacturing and South Korean conglomerates. SoftBank even explored a takeover of US chipmaker Marvell Technology Inc. earlier this year.
“The company’s value fluctuates depending on the market’s assessment of the value of its investments, so we believe the shares are likely to prove extremely volatile going forward. With net asset value (NAV) on an expansionary trajectory, we believe investors will warm to the stock,” Citigroup analyst Keiichi Yoneshima wrote in a note.