SoftBank’s OpenAI bet boosts profits but raises debt fears

Japanese tech investor SoftBank Group is expected to post another strong quarterly profit this week as its aggressive investment in OpenAI continues to fuel gains. But the company’s growing debt burden is drawing increasing attention from analysts and credit agencies.

SoftBank, led by founder Masayoshi Son, is forecast to report a net profit of 236 billion yen ($1.5 billion) for the January-March quarter when it releases earnings on Wednesday. The surge is largely linked to the soaring valuation of OpenAI, the creator of ChatGPT, which reached $840 billion after its latest funding round in February, News.Az reports, citing Reuters.

Analysts say SoftBank’s estimated 11% stake in OpenAI has rapidly increased in value. TD Cowen analyst Krish Sankar estimates the stake was worth around $80 billion by the end of March, compared with $54.4 billion just three months earlier.

The gains have strengthened investor confidence in SoftBank’s long-term AI strategy. Shares in the company have nearly doubled since early April, outperforming many major U.S. technology firms over the past year as enthusiasm around artificial intelligence and robotics continues to grow.

Still, concerns are rising over how SoftBank plans to finance its expanding commitments. The company is expected to invest another $30 billion into OpenAI through 2026, while also funding additional AI-related projects and acquisitions.

Analysts estimate SoftBank could face roughly $25 billion in further investment obligations next year, including billions tied to Stargate data center developments and planned acquisitions in the robotics sector.

The scale of SoftBank’s dependence on OpenAI has also prompted comparisons with previous high-risk bets such as WeWork, which SoftBank heavily backed before the office-sharing company eventually filed for bankruptcy.

Credit rating agency S&P Global Ratings recently revised SoftBank’s outlook to negative following OpenAI’s latest funding round, warning that the company’s financial flexibility and portfolio quality could weaken because of its massive AI investments.

SoftBank secured a $40 billion bridge loan in March to help fund its OpenAI commitments, but reports last week suggested lenders were cautious about extending additional financing backed by the company’s OpenAI stake.

Despite the concerns, analysts remain optimistic about SoftBank’s long-term ambitions in artificial intelligence. Nomura recently raised its price target on SoftBank shares to 7,500 yen, citing confidence in the company’s AI accelerator development and expanding robotics business.

Investors are now looking to Wednesday’s earnings report for clearer signals on how SoftBank plans to balance its ambitious AI expansion with growing financial pressure.

News.Az 

By Aysel Mammadzada