SoftBank credit risk hits four-year high over AI debt fears

SoftBank Group's credit risk has surged to its highest level in four years due to concerns over the profitability of artificial intelligence (AI), according to a report by Reuters. The 5-year credit default swap spread for the tech investor increased by 22 basis points to 466 basis points, marking the widest gap since October 2022. This jump in credit risk reflects growing apprehension among investors about SoftBank's ability to generate returns on its significant investments in AI-related ventures.

SoftBank's exposure to AI is substantial, with a $64.6 billion investment in OpenAI, a leading developer of frontier models, and a 90% stake in Arm, a chip designer. The company is seeking up to $100 billion from Gulf investors to fuel its AI push. However, investors have grown increasingly cautious about SoftBank's financial health this year.

The company has taken on record amounts of debt to fund its stake in OpenAI, and the timeline for a potential return on investment has been delayed, with OpenAI's public offering now set for 2027.

Recent political developments, such as the Democratic Party's landslide victory in the US midterm elections, have further exacerbated worries about a slowdown in AI infrastructure development. This potential slowdown poses a risk to one-third of US data center capacity, as these facilities are located in states where governors might impede further development. Rolf Bulk, head of semiconductors and infrastructure at the Futurum Group, highlighted this risk in a research report published on Thursday.