SoftBank’s billion-dollar loss may have put a cap on AI’s natural gas ambitions

SoftBank, known for its massive investments in tech trends, recently announced a $7.1 billion quarterly loss, partly due to over $3 billion in losses related to power-generating equipment. The company had made nonrefundable deposits to secure orders for turbine manufacturers, but now considers these deposits worthless. This loss stems from SoftBank's aggressive expansion into the natural gas power plant sector, where it invested $33 billion in a 9.2-gigawatt plant.

SoftBank's $30 billion bet on OpenAI and its over-ordering of turbines (13 gigawatts, almost 50% more than needed) aimed to corner the AI-driven power market. CEO Masayoshi Son believed that by deploying significant funds, he could secure a portion of the market. However, the magnitude of the bet appears to have backfired.

The energy sector was taken aback by the speed and scale of AI's growing power demands. Now, turbine order queues stretch into the early 2030s. SoftBank's over-ordering, while securing turbines, proved costly, as much of the investment is now considered worthless. Peter Gardett, CEO of Noreva, stated that SoftBank overpaid and over-ordered, which is now being recognized as a price discovery process.

Natural gas was initially seen as a reliable power source for AI data centers. However, as data centers operate longer, operators are better understanding their needs. Brent Nelson, senior managing director at Ascend Analytics, recommends connecting to the grid, even if it's smaller than initially planned. Large batteries can help balance peak loads and mitigate potential curtailments due to winter supply dips.

SoftBank's losses in the natural gas sector are not expected to cause mass cancellations of gas power plants, as AI's power demand appears too substantial for that. Currently, natural gas remains a favored option, but SoftBank may have reached a financial limit in its AI-related ventures.