Masayoshi Son, CEO of SoftBank, speaks during the company’s annual general meeting in Tokyo on June 20, 2024.
Kosuke Okahara | Bloomberg | Getty Images
SoftBank Group Shares hit a record high on Thursday as the company’s massive tech investment arm showed signs of recovery and its outspoken founder Masayoshi Son returned to the public spotlight to align the Japanese giant with a future in artificial intelligence.
The company has also been helped by the British chip designer’s public market success Armin which Softbank has a majority stake.
Shares of the Japanese giant closed at a record high of ¥11,190.00 on Thursday – a far cry from the dotcom crash of the early 2000s and a more recent downturn for the company during the tech market’s troubles 2021 and of 2022.
SoftBank’s journey to the top
Son founded SoftBank in 1981, when the company distributed software. It went public in Japan in 1994 and, amid the Internet boom, made a $2 million investment in Yahoo in the middle of that decade.
This started the company’s technology investments.
The rise of the Internet and Yahoo pushed SoftBank stock to a peak closing price of 10,111.1 yen on February 18, 2000. Three days earlier, the company’s shares had hit a high of 11,000 yen.
As Internet stocks collapsed, so did SoftBank’s stock price, which at one point sank more than 90% below its dotcom peak.
It wasn’t until nearly 21 years later, on February 16, 2021, that SoftBank surpassed its previous closing record.
Vision Fund
The stock’s recent run to a peak has been volatile since Son positioned SoftBank as a visionary pioneer with the 2017 launch of a massive technology investment arm – the Vision Fund.
SoftBank has made dozens of bets on tech companies around the world, some of which have turned sour. Office-sharing startup WeWork was perhaps one of the higher-profile names. But some of SoftBank’s investments in Chinese companies also took a hit after Beijing began a crackdown on the domestic tech sector in late 2020.
After hovering near then-record highs in March 2021, SoftBank’s stock fell sharply, along with other global technology stocks. The Vision Fund then posted record financial losses in 2022. Son said SoftBank would go into “defense” mode and be more conservative with its investments. He changed talent shortly after the Vision Fund posted a record loss of $32 billion in 2023, saying the firm would now turn to “offense” because he was excited about investment opportunities in artificial intelligence.
SoftBank’s share price has started to recover since about May 2023, and the Japanese titan’s Vision Fund more recently posted better financials amid broader recoveries in tech stocks.
“Softbank Vision Fund has had to write off several investments due to a combination of declining share values and a tougher private finance environment. It appears that the down cycle is mostly over and there is a good chance that the IPO market will be more constructive towards going forward, especially for AI-related investments,” Oliver Matthews, head of Asia consumer research at CLSA, told CNBC via email.
Arm chip reinforcement
Several analysts have attributed SoftBank’s recent share price rise of about 78% year-to-date to Arm’s IPO success, which it acquired in 2016.
SoftBank owns about 90% of Arm even after the listing. Shares of the arm are up nearly 124% this year alone, since the July 3 close.
“SoftBank Group’s investment strategy and focus has long included developing an AI ecosystem portfolio, well before the LLM (large language model) in AI-related names over the past 18 months or so,” said Paul Golding , a senior U.S. official. lifestyle and payments analyst at U.S. equity research Macquarie told CNBC via email.
“This vision, in our view, likely drove part of the investment decision in 2016 to acquire Arm, giving SoftBank Group direct exposure to the dynamics of the semiconductor market and ownership of intellectual property around semiconductor design long before broader advances in AI use cases and platforms.”
SoftBank shares “have benefited from these uses over the more widely publicized ones” for Arm’s intellectual property, such as in the automotive industry or the cloud data center, Golding added.
Do investors believe the SoftBank story?
Over the years, investors have focused on whether SoftBank Group’s valuation fairly reflects the assets it invests in or owns.
For example, SoftBank’s valuation is around $101.5 billion. Arm’s market cap is about $176 billion — meaning SoftBank’s 90% stake equates to about $158 billion of that amount. That alone is significantly higher than SoftBank Group’s total valuation, without taking into account the company’s other holdings and businesses, such as its telecommunications arm.
Analysts cite this as a reason why SoftBank’s stock price does not reflect its fair value.
Dan Baker, senior equity analyst at Morningstar, said much of SoftBank’s price appreciation was due to Arm.
“I’m not sure investors are convinced by the SoftBank story again,” Baker told CNBC by email, adding that the stock’s rally this year is “primarily” because Arm stock has rallied while the Japanese yen has weakened. Baker said it’s worth looking at a so-called sum-of-the-parts (SOTP) valuation, which assigns a value to the various parts of SoftBank’s holdings to calculate the company’s value. Baker said SOTP’s valuation remains just under 50% this year, meaning SoftBank’s stock doesn’t truly reflect the value of its various businesses and investments.
“So I’m not sure investors are ‘buying the SoftBank story,’ but investors are definitely buying the ARM story,” Baker said.
Investors also welcomed the fact that SoftBank sold almost all of its shares in Alibaba, the Chinese e-commerce giant that Son backed in 2000.
SoftBank was also likely helped by a recent broader rally in Japanese stocks, with the Nikkei 225 The index was up 22% this year alone as of Thursday.
Artificial super intelligence
But can Son’s focus on artificial intelligence further boost SoftBank’s value and close the discount on its basket of assets?
The SoftBank founder, who has been out of the spotlight for the past year, recently spoke about his excitement about the future of AI and how SoftBank can be at the center of this technology with its investment in companies like Arm .
Sean laid out his vision of a world with what he called last month artificial super intelligence or ASI, which would be 10,000 times smarter than humans.
It comes at a time when investors are frantically looking to play the artificial intelligence boom, with the parabolic rise of by Nvidia share price highlighting the excitement surrounding the technology.
CLSA’s Matthew said SoftBank’s discount could narrow in the future, thanks to some of the company’s early investments in artificial intelligence.
“Softbank has been absolutely consistent in its investment direction; it was one of the first investors behind the AI thing and in a way very early on so many investors thought they were overpaying or buying into some companies where it wasn’t clear how the artificial intelligence are related,” Matthew said.
“As a result, Softbank Group shares are trading at a surprisingly large discount to their fair value, and we believe this discount will narrow in the future.”
