SoftBank (SFTBY.US) continues to increase AI gambling without fear of a dark surge of risk! Plans to raise $100 billion from investors in the Gulf region

The Zhitong Finance App learned that according to reports, SoftBank Group (SFTBY.US) is seeking to raise up to 100 billion US dollars from investors in the Gulf region to increase its bets on the field of artificial intelligence (AI). This will be one of the company's largest AI financing operations to date.

The report quoted people familiar with the matter as saying that SoftBank founder Sun Zhengyi has already conducted preliminary negotiations with various institutions, including UAE investors. The funds raised will be used to establish a fund that will be used to acquire companies and use AI and robotics to improve their operations. Roze, a robotics and physical AI business owned by SoftBank, is expected to play a key role in this process. At the same time, people familiar with the matter stressed that negotiations with Gulf investors have no guarantee of success.

In recent years, the Gulf countries have been allocating large amounts of wealth to the AI sector to push the economy away from energy dependence. Among them, Abu Dhabi has become one of the largest investors in the global AI field through platforms such as the AI special fund MGX and the AI holding company G42.

If this fundraising is successful, it will provide a new source of funding for Sun Zhengyi to increase his bets in the AI field. It is worth mentioning that this financing is not the first time Sun Zhengyi has sought large financial support from the Gulf region. In 2017, the UAE's sovereign wealth fund Mubadala and the Saudi Arabian Public Investment Fund (PIF) both participated in SoftBank's first vision fund of 100 billion US dollars. As of the end of June this year, the cumulative investment income of the first phase of the Vision Fund was approximately US$29 billion. Meanwhile, Vision Fund Phase II, with SoftBank's own capital as the main funder and holding OpenAI shares, recorded revenue of 20.5 billion US dollars.

Continue to increase AI gambling

SoftBank's most notable investment in the AI field is its $65 billion investment in OpenAI. In addition to investing heavily in OpenAI, SoftBank's actions in the AI field include the acquisition of ABB Ltd.'s industrial robotics business for US$5.4 billion and the acquisition of DigitalBridge Group Inc., a private equity firm focused on data centers for approximately US$3 billion in cash.

For Masayoshi Sun, his growing AI ambitions also include a major expansion of data centers in the US and France. SB Energy Inc., an American subsidiary of SoftBank, is developing data center production capacity totaling 8.8 gigawatts across the US, with an estimated capital expenditure of 174 billion US dollars. SoftBank also announced plans to build a 5 GW data center in France.

In order to support growing AI ambitions, SoftBank has used various methods of financing, including: increasing the size of a margin loan secured by shares of its chip division Arm Holdings (ARM.US) to $25 billion; completing the largest junk bond issuance in history, raising more than 11 billion US dollars to investors with a maximum yield of 9.75%; and using its OpenAI shares as collateral to obtain a sum of $10 billion from lenders, including Apollo Global Management (APO.US), A loan with a term of two years.

Risks cannot be ignored

However, as SoftBank's multi-billion dollar AI projects continue to increase, and the future revenue returns these projects can bring are still largely uncertain, investors are increasingly concerned about this surge in spending. In the current context of rising global interest rates, the continuous increase in financing instruments also means that SoftBank's balance sheet is more sensitive to changes in interest rates, credit spreads, and the valuation of its AI assets. According to reports, in mid-September, SoftBank's credit default swap (CDS) hit a three-year high (about 360 basis points), and debt insurance costs rose markedly.

For SoftBank, another layer of pressure comes from OpenAI's delay in listing. This means that after SoftBank previously invested in OpenAI through large-scale financing, it may lack a clear channel to exit the open market in the short term, and the time required for related capital may also be further extended. If OpenAI goes public in the future, the relevant shares held by SoftBank will receive more clear liquidity channels. However, the delay in listing means that SoftBank will need to bear financing costs for a longer period of time while waiting for the investment value to be realized.

Furthermore, SoftBank's big bet on OpenAI also means that it is extremely susceptible to transmission from OpenAI. According to reports, OpenAI disclosed to investors that as of the end of September, its annualized revenue was about 50 billion US dollars, lower than the 70 billion US dollars that had previously been widely circulated in the market. SoftBank shares fell 5% in a single day after the news was announced. Although the cumulative increase in SoftBank's stock price since this year is still about 25%, it has fallen by more than 30% from its peak in June when it briefly became the company with the highest market capitalization in Japan.

An analyst based in Asia warned that “the chain effect... may worsen dramatically in a short period of time” because SoftBank's massive investment is directly or indirectly linked to OpenAI and the AI circuit. Once OpenAI's valuation falls sharply, the transmission impact cannot be underestimated.