CoinDesk Reports:
On Thursday, SoftBank Group’s stock price hit a historic high, marking a resurgence for its vast tech investment arm. Founder Masayoshi Son’s candid approach has once again placed him in the public spotlight, aligning this Japanese giant with the future of artificial intelligence. The company also benefited from the successful public market debut of UK chip designer Arm, of which SoftBank holds a majority stake. The Japanese conglomerate closed Thursday at a historic high of ¥11,190.00, a far cry from the lows it faced during the dot-com crash of the early 21st century and its recent tech market downturns in 2021 and 2022.
SoftBank’s Peak Journey
SoftBank, founded by Masayoshi Son in 1981 initially distributing software, went public in Japan in 1994 and made a $2 million investment in Yahoo during the mid-90s internet boom. This marked the beginning of its tech investments. By February 18, 2000, the rise of the internet and Yahoo pushed SoftBank’s stocks to a closing peak of ¥10111.1. Three days ago, the company’s stock touched an intraday high of ¥11000. Amid the dot-com crash, SoftBank’s stock plummeted, at one point more than 90% below its internet peak. It wasn’t until February 16, 2021, nearly 21 years later, that SoftBank surpassed its previous historic high.
Vision Fund
Since launching the Vision Fund in 2017, a large tech investment arm positioning SoftBank as a visionary pioneer, the recent surge in stock price to record highs has been volatile. SoftBank has placed bets on tech companies worldwide, with some bets not panning out. Notably, office-sharing startup WeWork was one of the more prominent names. However, SoftBank’s investments in Chinese companies took a hit after Beijing began cracking down on the domestic tech industry at the end of 2020. After hovering near historic highs in March 2021, SoftBank’s stocks, like other global tech stocks, saw significant declines. The Vision Fund reported record financial losses in 2022. Son announced a shift to a more conservative investment approach, entering a “defensive” mode. Shortly after the Vision Fund’s record $32 billion loss in 2023, he pivoted, stating the company would now move to an “offensive” stance, buoyed by exciting AI investment opportunities.
Arm’s Boost
Analysts attribute SoftBank’s recent stock surge, up approximately 78% year-to-date, largely to the successful IPO of Arm, acquired by SoftBank in 2016. Even post-IPO, SoftBank retains about 90% ownership of Arm. As of July 3rd closing, Arm’s stock has risen nearly 124% this year alone. Paul Golding, Senior US Lifestyle and Payments Analyst at Macquarie US Stock Research, told CNBC via email, “SoftBank Group’s investment strategy and focus have long included developing an AI ecosystem portfolio, well before the recent LLM (Large Language Model)-driven AI-related name bull market over the past 18 months.” “In our view, this vision may have informed some of the investment decisions leading to the 2016 acquisition of Arm, allowing SoftBank Group to access semiconductor market dynamics and ownership of semiconductor design intellectual property well before making broader strides in AI use cases and platforms,” Golding added. “SoftBank’s stock” has consistently benefited from this extensive use of Arm’s intellectual property, such as in the automotive industry or cloud data centers.
Investors Believe in SoftBank’s Story?
Investors have long pondered whether SoftBank Group’s valuation fairly reflects its investments or assets held. For instance, SoftBank’s valuation is around $101.5 billion. Arm is valued at approximately $176 billion, meaning SoftBank’s 90% stake equals $158 billion therein. This alone vastly exceeds SoftBank Group’s overall valuation, not accounting for its other holdings and businesses like its telecommunications segment. Analysts cite this as a reason why SoftBank’s stock price has not fully reflected its fair value. Dan Baker, Senior Stock Analyst at Morningstar, stated that much of SoftBank’s price surge is indeed due to Arm. Baker told CNBC via email, “I’m not sure investors are once again buying into SoftBank’s story.” He added that this year’s price hike is “primarily” due to Arm’s rise and the weakening yen. Baker suggested examining the Sum of the Parts (SOTP) valuation, attributing value to various parts SoftBank holds to calculate the company’s value. He noted that this year’s SOTP valuation still slightly falls below 50%, indicating SoftBank’s stock may not truly reflect the value of its various businesses and investments. “So I’m not sure investors are ‘buying into the SoftBank story,’ but they certainly are buying into the Arm story,” Baker said. Investors also cheered when SoftBank nearly sold all its shares in Alibaba, the Chinese e-commerce giant supported by Son in 2000. SoftBank has also likely benefited from a broader rise in the Japanese stock market recently, with the Nikkei 225 Index up 22% year-to-date as of Thursday.
Artificial Superintelligence
But can Son’s focus on artificial intelligence further elevate SoftBank’s value and narrow the discount on its basket of assets? The SoftBank founder, who has been out of the public eye for much of last year, recently discussed his excitement about the future of AI and how SoftBank aims to centralize this technology through investments in companies like Arm. His son last month outlined his vision for a world characterized by what he termed Artificial Superintelligence (ASI), 10,000 times smarter than humans. This comes as investors feverishly explore capitalizing on the AI boom, highlighted by the skyrocketing stock price of Nvidia.
