SoftBank market value halves from peak as AI fears grow

SoftBank's market value has plummeted to half of its peak after concerns grew over the sustainability of its massive investments in artificial intelligence (AI), driven by higher borrowing costs. The Tokyo-based company's shares dropped 6.9% on Thursday, marking a 50% decline from its all-time high on June 2, as U.S. megacaps' earnings failed to alleviate investor anxiety.

Once Japan's biggest company, SoftBank's market capitalization is currently around ¥24.7 trillion ($157 billion), trailing behind Hitachi and Recruit. The AI spending fears intensified following CoreWeave's bonds falling to distress levels, highlighting financing risks across the industry. Kazuyuki Muramatsu, head of investment management at Nagomi Capital, noted that SoftBank's vulnerability is prominent due to its highly leveraged financial structure and increasing borrowing costs.

If the AI growth narrative turns sour globally, SoftBank's Vision Fund could face valuation losses, leading to higher premiums for future funding. Credit-default swaps for SoftBank's debt have surged to the highest in nearly four years, reflecting investors' apprehensions. With its investments spanning AI infrastructure, energy, and robotics, the company's heavy reliance on debt financing amplifies the risks.

CoreWeave's struggles have dampened confidence even among equity investors who were initially focused on the returns from SoftBank's AI ventures. The stock, which is the Nikkei's worst performer this month, has plummeted more than 30% and erased all gains from September. Additionally, the race among AI models poses a further threat, as OpenAI, a $65 billion investment by SoftBank, faces competition from more affordable Chinese rivals.

SoftBank raised $11.1 billion in September through the largest corporate junk bond sale on record to finance its ambitious AI plans.