SoftBank Q1 Net Profit Beats Estimates as Intel Gains Offset OpenAI Valuation Stagnation

TradingKey - SoftBank Group reported that its net profit for the first fiscal quarter ended June 30 was 347.33 billion yen (about $2.2 billion), down about 18% year-on-year, but far higher than market expectations of approximately 166 billion yen.

The profit for this quarter exceeded expectations, mainly due to a sharp appreciation in the value of its Intel ( INTC) holdings. Meanwhile, OpenAI's valuation did not change significantly this quarter, and some assets under the Vision Fund also fell, indicating that SoftBank's investment returns remain highly dependent on a few core holdings.

Intel Investment Bolsters Results as OpenAI Returns Yet to Materialize

SoftBank generated approximately 1.3 trillion yen (about $8.5 billion) in investment gains from its Intel holdings this quarter. The company invested $2 billion last year to buy Intel stock at around $23 per share, and Intel's share price surged 216% during the quarter ended at the end of June, bringing substantial paper returns to SoftBank.

This gain largely offset the pressure from the stagnant valuation growth of OpenAI and the decline in the value of some portfolios within the Vision Fund.

Compared with the previous fiscal quarter, OpenAI brought no new investment gains or losses to SoftBank this quarter. Previously, the sharp rise in OpenAI's valuation had been a major driver of SoftBank's profit growth, so the unchanged valuation this quarter has also prompted the market to refocus on the actual returns of this investment.

SoftBank invested $20 billion in OpenAI in April and July this year as part of its planned additional investment. The next tranche of funding is expected to be completed in October, which will bring SoftBank's cumulative investment in OpenAI to approximately $64.6 billion.

Masayoshi Son has always viewed OpenAI as the core of SoftBank's AI strategy, while investors hope that OpenAI will go public in the future to provide more transparent market pricing and offer a potential exit route for SoftBank.

However, the timing of OpenAI's IPO remains unclear, and its rising expenditures on data centers, chips, and other infrastructure have also raised market concerns over its debt and profitability.

High Leverage Magnifies SoftBank's AI Investment Risk

In recent years, Masayoshi Son has further concentrated SoftBank's resources in the artificial intelligence sector, with an investment portfolio spanning OpenAI, Arm ( ARM ), robotics, data centers, and energy infrastructure. This strategy provides the company with substantial long-term growth potential, while also increasing balance sheet leverage and investment concentration.

To support its investment in OpenAI, SoftBank has arranged approximately $40 billion in bridge loans and secured around $20 billion in margin loans by pledging Arm shares. If the valuations of OpenAI or Arm continue to rise, this financing method can amplify SoftBank's investment returns; however, if core asset prices decline, it could also increase refinancing and collateral pressures.

SoftBank's stock price has already reflected the volatility of AI market sentiment. In June this year, boosted by Arm, OpenAI, and AI infrastructure investment plans, the company briefly became Japan's most valuable listed company.

Since then, as OpenAI's potential IPO plans faced delays and market concerns over AI investment returns intensified, SoftBank's stock price gave back more than half of its previous gains. Currently, SoftBank's market capitalization has slipped to third in Japan, ranking behind Mitsubishi UFJ Financial Group and Toyota Motor. Nonetheless, the company's stock price remains up approximately 26% year-to-date.