SoftBank Hits Record High as AI Focus and Arm Boost Drive Share Price
SoftBank Group, the Japanese tech giant founded by the visionary Masayoshi Son, is riding high, with its shares hitting a record high on Thursday. The resurgence is driven by a combination of factors, including the recovery of its massive tech investment arm, the Vision Fund, and the IPO success of Arm, the British chip designer in which SoftBank holds a majority stake. This resurgence marks a dramatic turnaround from the tech market troubles of 2021 and 2022, when SoftBank faced significant losses in its investments and Son himself steered the company into a "defense" mode.
Key Takeaways:
- SoftBank’s shares hit a record high, fueled by the Vision Fund’s recovery and the success of Arm’s IPO.
- The company’s focus on artificial intelligence is seen as a key driver for future growth.
- Analysts believe the discount to its assets may narrow as SoftBank’s AI investments mature.
- Son’s recent pronouncements about a future dominated by artificial super intelligence (ASI) have rekindled investor enthusiasm.
A Journey to the Peak:
SoftBank’s journey to its current peak has been marked by highs and lows. Founded in 1981 as a software distributor, the company went public in 1994 and capitalized on the internet boom with a $2 million investment in Yahoo in the mid-1990s. This investment propelled SoftBank’s stock to a peak closing price of 10,111.1 yen on February 18, 2000, before plummeting by more than 90% during the dot-com crash. It wasn’t until February 16, 2021, almost 21 years later, that SoftBank exceeded its previous record high close.
The Vision Fund and Its Lessons:
The recent surge in SoftBank’s stock price has been closely tied to the launch of the Vision Fund in 2017. The fund aimed to make bold bets on tech companies worldwide, and while some investments like WeWork turned sour, others, particularly in Chinese companies, suffered setbacks after Beijing’s crackdown on the domestic tech sector in late 2020.
The tech market downturn in 2021 and 2022 severely impacted the Vision Fund, leading to record losses. This caused Son to shift the company’s strategy to a "defense" mode, with a more conservative approach to investments. However, after recording a record $32 billion loss in 2023, Son declared a shift to "offense," fueled by his excitement about AI investment opportunities.
The Arm Boost:
Several analysts attribute SoftBank’s recent share price surge of roughly 78% this year to the successful IPO of Arm, which SoftBank acquired in 2016. Despite the listing, SoftBank retains approximately 90% ownership of Arm, and the company’s stock has risen nearly 124% this year.
Analysts believe this success underscores SoftBank’s foresight in acquiring Arm, recognizing its potential within the ever-evolving AI ecosystem. As Arm’s intellectual property finds applications in industries like automotive and cloud data centers, investors are increasingly optimistic about its future prospects, which positively impacts SoftBank’s valuation.
The SoftBank Story: Does It Add Up?
While SoftBank’s share price is soaring, some investors remain unconvinced about the company’s overall valuation. For example, SoftBank’s valuation currently sits at around $101.5 billion, while Arm’s market capitalization is estimated at $176 billion. This means that SoftBank’s 90% stake in Arm would be worth approximately $158 billion, eclipsing SoftBank’s overall valuation before even considering other holdings and businesses.
Analysts believe this discrepancy highlights the disconnect between SoftBank’s stock price and its intrinsic value. Morningstar’s Dan Baker, a senior equity analyst, emphasizes that Arm’s success is a significant factor in SoftBank’s price gains, but argues that many investors remain unconvinced about SoftBank’s overall narrative. He points to SoftBank’s sum-of-the-parts (SOTP) valuation, which assigns value to the company’s different assets, noting that it remains just under 50% for the year. This suggests that SoftBank’s stock price doesn’t fully reflect the value of its holdings.
Adding AI to the Equation:
However, Son’s renewed focus on AI has reignited investor enthusiasm. He has recently emerged from a period of relative public silence to champion the potential of AI, particularly artificial super intelligence (ASI), which he believes could be 10,000 times more intelligent than humans. This vision has resonated with investors at a time when AI is generating widespread excitement in global markets, as evidenced by the meteoric rise of Nvidia’s stock price.
Analysts are cautiously optimistic that SoftBank’s early investments in AI could reduce the valuation discount it currently faces. CLSA’s Oliver Matthew believes that as these investments mature, SoftBank’s focus on AI will become more apparent, leading to a narrowing of the gap between its share price and the value of its assets.
The Future of SoftBank:
While challenges remain, SoftBank appears poised to capitalize on the global AI boom. The success of its investments in Arm and its proactive stance on AI, combined with Son’s renewed enthusiasm, point towards a future where SoftBank, once again, assumes a leading role in the tech landscape. Whether Son’s vision for ASI translates into tangible value for investors remains to be seen, but the company’s renewed focus on AI has injected a fresh dose of optimism into SoftBank’s story.
