SoftBank targets $9 billion a year in AI investments as it pursues bigger deals

SoftBank is prepared to commit close to $9 billion a year to investments in artificial intelligence, even as the Japanese technology group retains firepower for larger deals aimed at accelerating what could be its most radical transformation to date.

Founder Masayoshi Son has been outspoken about his belief in AI and the need to reshape the company in the search for businesses that can support the group’s crown jewel, UK-based chip designer Arm, whose valuation has soared since it went public last year.

SoftBank’s spending on investments and commitments has more than doubled to $8.9 billion in the 12 months since Son said the company was ready to go on the “counteroffensive”. SoftBank said it was ready to maintain, or even exceed, the value of the right mega-deal.

“In principle, we will maintain the same kind of trend in terms of the pace of investment activities,” SoftBank Chief Financial Officer Yoshimitsu Goto told the Financial Times. “From now on we want to intensify investments in AI companies.

“The reason we have been keeping our balance sheet at a very safe level is because we would like to be prepared,” he added, “and we would like to be flexible if there is something we would like to move forward with.”

Built son SoftBank from an internet broadband business to a regulated mobile phone network company, snapping up Vodafone Japan and Sprint along the way. He then radically transformed the group into an investment giant with the support of Saudi Arabia and Abu Dhabi, while also capitalizing on an extremely successful investment in Alibaba.

In his belief that AI will be the source of future growth, the billionaire is trying to reshape SoftBank and its risk-taking Vision Funds to remain relevant in what he considers the next phase of humanity.

However, it faces strong global opposition. Big tech groups like Microsoft, Amazon and Google have committed billions of dollars to partnerships with start-ups building AI models, while top venture capital firms are seeking deals with groups building AI products and applications.

SoftBank has also struggled in recent years with some of its biggest investments, including about $14 billion in WeWork before the desk-rental startup’s bankruptcy.

The group’s balance sheet has been strengthened since those darkest times, and on Wednesday ratings agency S&P upgraded SoftBank back to double B plus, its highest non-investment grade, citing an “improvement in asset quality.” .

This growing strength gives SoftBank the ability to do a large-scale deal, but Goto said he wouldn’t allow his finances to be stretched in that pursuit.

Highlighting a loan-to-value ratio of around 8.5% and a net asset value of ¥27.8 trillion ($180 billion) – driven by Arm – SoftBank’s CFO said it had the balance sheet capacity to do big deals worth tens of billions of dollars. . But he cautioned that investors should not expect SoftBank to fund such moves alone or without resorting to structured or non-recourse financing.

“What [strength] does not mean that we are ready to spend 10 billion dollars, 20 billion dollars, 30 billion dollars. . . this is not something we expect to come off our balance sheet,” he said.

Trading appears to be improving. SoftBank this month led an investment of more than US$1 billion in Wayve, UK self-driving car start-upmarking Europe’s largest AI deal to date.

Son was personally involved in the deal due to its size and the fact that it was an AI-related investment, said Kentaro Matsui, head of new business at SoftBank and managing partner of its Vision Funds.

Goto also outlined some areas he considers ripe for the kind of investment needed to help the AI ​​sector grow and benefit Arm, including power generation and data centers.

But he declined to comment on press reports that Arm and SoftBank were considering producing an AI chip. The group is also in talks to buy another U.K. chip designer, Graphcore, according to a person familiar with the discussions. SoftBank declined to comment.

Having given up on reporting profits more than a year ago, Son is expected to speak at SoftBank’s annual shareholder meeting in June, when Goto suggests he could reveal more details about his AI plan.

For some investors, these plans could divert the group from its core businesses, including Arm and its telecommunications subsidiary SoftBank Corporation.

“If we look at their investments, the volatility is such that it doesn’t matter if they make $10 billion or $20 billion. . . and it will be all or nothing if they bet on AI chips,” said a long-term investor in Tokyo. “Yes, they have Arm and can write big checks, but going from planning to execution will not be easy.”

Inside SoftBank, however, the direction of travel appears set. Their Vision Funds are already a very different beast from the years when they wrote big checks to start-ups. They have increasingly moved from seeking investments to exiting to generate returns, and this generated billions of dollars in sales last year.

As the pace of investment slows, Vision Funds are increasingly becoming integrated into SoftBank, rather than operating as its own fiefdom. Especially because the vast majority of the money left to invest – deposited in the second Vision Fund – belongs to Son.

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The change resulted in increasing role confusion for Vision Fund executives. Last year, SoftBank created a so-called Platform Group, made up of consultants from Vision Funds looking for investment opportunities in AI.

Crucially, these investments are not necessarily made by the Vision Funds, but rather financed through the group’s balance sheet – a decision that is defined by the fact that SoftBank considers the asset to be strategic, rather than an asset that will ultimately be sold for returns. .

“We actually merged and called our international business ‘One SoftBank’ internally as a way to remind ourselves that the goal is to bring money home,” said Alex Clavel, co-chief executive officer of SoftBank’s Vision Funds.

This article has been updated to clarify the size of SoftBank’s investment in WeWork

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