SoftBank to face scrutiny of AI strategy at Q2 earnings after sell-off

SoftBank Group is set to release its quarterly earnings on November 10, as investors closely scrutinize the company's AI strategy amid a sharp decline in the sector's stocks. The company's significant investments in AI, including a 13% stake in OpenAI at $64.6 billion, have raised concerns about its ability to navigate potential setbacks in the industry.

The Democratic Party's recent victory in the US midterm elections has increased the likelihood of regulatory scrutiny and delays in building data centers, further fueling skepticism about SoftBank's potential returns on its AI-related investments. Analysts are uncertain about the company's near-term financial outlook, with projections ranging from a profit of 233 billion yen to a loss of 113 billion yen for the July-September period.

SoftBank has taken on substantial debt, with net interest-bearing debt reaching 10.8 trillion yen as of June. The company's shares have plummeted 23% year-to-date, declining 11% on Friday following the AI sector's setbacks. Additionally, the cost of insuring SoftBank's debt against default has hit a four-year high. The company's financial situation is further complicated by the falling value of some of its largest holdings, such as Arm's shares, which have fallen around 60% since June, below US$200.

As a result, SoftBank may need to reassess its investment strategy, potentially de-leveraging and selling off positions. The company's response to China's blocking of its $5.4 billion takeover of ABB's robotics division remains uncertain, with ongoing talks between SoftBank and Chinese authorities to potentially carve out the China business.