SoftBank Shares Plunge Over 11% as High-Leverage AI Bets Fuel Market Concerns

TradingKey - During the Asian trading session on June 4, SoftBank Group's shares plummeted over 11%, marking its largest single-day drop since the beginning of 2024. The tech investment giant is facing a market reassessment of its highly leveraged AI betting strategy, an adjustment accelerated by the broad sell-off in U.S. tech stocks overnight.

[Source: TradingView]

SoftBank's share price closed at 7,377 yen on Thursday, down approximately 11.28%. The stock's year-to-date cumulative gain had once exceeded 70%, and it surpassed Toyota earlier this week to become Japan's most valuable company by market capitalization.

The trigger for the plunge was the re-escalation of tensions in the Middle East, leading to a broad weakening of U.S. stocks overnight. Risk-off sentiment quickly spread to Asian markets, with the Nikkei 225 index closing down 1.36% on the day; SoftBank was one of the most significant individual stocks weighing on the benchmark.

With SoftBank's decline far exceeding the broader market, its unique balance sheet structure has become a focus for investors. According to S&P Global Ratings, SoftBank's interest-bearing debt on a standalone basis is expected to reach approximately 16.3 trillion yen (around $104 billion) by the end of 2025. In March, SoftBank secured an additional $40 billion bridge loan to increase its investment in OpenAI. S&P downgraded SoftBank's credit outlook from "stable" to "negative" in March, citing that the additional investment would impair its asset liquidity and credit quality.

SoftBank's core holdings are highly concentrated in chip design firm Arm ( ARM) and AI company OpenAI. SoftBank holds approximately a 90% stake in Arm, whose valuation is highly correlated with global AI chip demand expectations.

Regarding OpenAI, SoftBank has committed a total of approximately $64 billion, of which about $34.6 billion has been invested, representing a stake of roughly 13%. S&P estimates that after the additional $30 billion investment, OpenAI's share in SoftBank's portfolio will rise to about 30%, roughly equivalent to Arm's weight.

Gil Luria, head of technology research at D.A. Davidson, stated: "SoftBank has positioned itself as a highly leveraged bet on AI, which offers significant upside potential but also carries substantial risks."

Wharton School Professor Emeritus Jay R. Ritter put it more bluntly: "Buying SoftBank is a leveraged bet on OpenAI. If OpenAI performs well, the leverage helps; if it performs poorly, the leverage will backfire."

The competitive landscape of AI is changing rapidly, further exacerbating market concerns. SpaceX is planning an IPO on June 12, and Anthropic has confidentially filed for an initial public offering. While these IPOs do not directly affect SoftBank's fundamentals, market sentiment is already fragile, and any talk of "AI capital diversion" could be amplified.