SoftBank is prepared to spend nearly $9 billion a year on artificial intelligence, even as it saves the cash for bigger deals aimed at accelerating its most radical transformation yet.
Founder Masayoshi Son has been vocal about his belief in AI and the need to restructure the company in pursuit of a deal to shore up the group’s flagship product, UK-based semiconductor design company Arm, whose valuation has soared since it went public last year.
SoftBank’s investment and commitment spending has more than doubled to $8.9 billion in the 12 months since Son said the company was ready to “fight back.” SoftBank said it was ready to maintain or even exceed that amount for the right big deal.
“In terms of the pace of our investment activities, we intend to maintain the same trend in principle,” SoftBank Chief Financial Officer Yoshimitsu Goto told the Financial Times. “Going forward, we want to step up our investments in AI companies.”
“We’ve kept our balance sheet at a very safe level because we want to be prepared for any eventuality,” he added. “And we want to be flexible if there are things we want to move forward with.”
Son built SoftBank from an internet broadband business into a regulated mobile phone network company, acquiring Vodafone Japan and Sprint along the way, before dramatically transforming the group into an investment giant with the backing of Saudi Arabia and Abu Dhabi, leveraging its hugely successful investment in Alibaba.
With a belief that AI will be a source of future growth, the billionaire is restructuring SoftBank and its risk-taking Vision Fund to ensure it remains relevant in what he sees as the next phase of humanity.
But it faces stiff opposition from around the world: Big tech companies including Microsoft, Amazon and Google are spending billions of dollars to partner with startups building AI models, while major venture capital firms are seeking deals with groups developing AI products and applications.
SoftBank has also been dogged by some big investments in recent years, including a roughly $16 billion investment in desk-rental start-up WeWork before it collapsed.
The group’s balance sheet has strengthened since those dark days, with ratings agency S&P raising SoftBank’s rating to double B+, its highest non-investment rating, on Wednesday, citing “improving asset quality.”
The build-up gives SoftBank the ability to do bigger deals, but Goto said the company won’t let it strain its finances.
SoftBank’s chief financial officer highlighted its roughly 8.5% loan-to-value ratio driven by Arm and its 27.8 trillion yen ($180 billion) net assets and said the company has the balance sheet headroom to make big deals worth tens of billions of dollars.But he cautioned that investors shouldn’t expect SoftBank to fund such moves on its own or without using structured or nonrecourse financing.
“that [strength] “That doesn’t mean we’re prepared to spend $10 billion, $20 billion, $30 billion. We don’t expect that to come off our balance sheet,” he said.
Dealmaking appears to be picking up steam: SoftBank led a more than $1 billion investment in British self-driving car startup Wave this month, Europe’s largest AI deal to date.
Kentaro Matsui, SoftBank’s head of new business and managing partner at the Vision Fund, said Son got personally involved in the deal because of its size and the investment’s focus on AI.
Goto also outlined areas such as power generation and data centers where Arm believes the investment needed to grow the AI ​​sector and benefit is ripe.
But he declined to comment on reports that Arm and SoftBank are considering making AI chips. Arm is also in talks to buy Graphcore, another British chip designer, according to a person familiar with the talks. SoftBank declined to comment.
Son retired from earnings calls more than a year ago but is scheduled to speak at SoftBank’s annual shareholders’ meeting in June, and Goto suggested Son could reveal further details about the company’s AI plans.
For some investors, such plans could divert attention from the group’s core businesses, which include Arm and its telecommunications subsidiary SoftBank Corp.
“If you look at their investments, the volatility is such that it doesn’t matter if it’s $10 billion or $20 billion. If you invest in AI chips, you get everything or nothing,” said one long-term investor in Tokyo. “Yes, they own Arm and they can write big checks, but it’s not going to be easy to get them off the ground.”
But inside SoftBank, the direction seems clear: The company’s Vision Fund has already changed dramatically from its days of pouring billions of yen into startups, shifting its focus from finding investments to exiting them for returns, leading to billions of dollars in sales last year.
As the pace of investment has slowed, the Vision Fund has increasingly come under SoftBank umbrella rather than operating as its own sphere, in part because most of the money left to invest (parked in the second Vision Fund) belongs to Son.
The shift has made the roles of Vision Fund executives increasingly blurred. SoftBank last year created a so-called Platform Group made up of Vision Fund advisers to work on identifying AI investment opportunities.
Importantly, these investments would not necessarily be made by the Vision Fund but would be financed through the group’s balance sheet — a decision that will depend on whether SoftBank sees the assets as strategic, rather than something to be sold off for an eventual profit.
“We’ve actually combined our international operations and are calling it ‘One SoftBank’ internally to remind ourselves that the goal is to bring money home,” said Alex Clavel, co-chief executive officer of SoftBank’s Vision Fund.
