SoftBank Group faces growing investor scrutiny ahead of its quarterly earnings on Tuesday, as a sharp selloff in artificial intelligence stocks and China’s decision to block its $5.4 billion acquisition of ABB’s robotics business raise questions about the Japanese investment company’s financial exposure and ability to sustain its ambitious technology strategy.
Investors will be looking for reassurance about SoftBank’s capacity to withstand a downturn in AI-related valuations, particularly after its heavy investment in OpenAI and a broader portfolio spanning AI developers, semiconductor companies, data center infrastructure and robotics.
The company’s largest recent commitment is the $64.6 billion it has spent to acquire a 13% stake in OpenAI. The investment has increased SoftBank’s exposure to the AI sector at a time when investors are becoming more cautious about the returns from the industry’s enormous infrastructure spending.
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The Democratic Party’s sweeping success in the US midterm elections has added to concerns about regulatory scrutiny and possible delays to data center construction, raising questions about how quickly AI companies can expand computing capacity and generate returns.
“The near-term buildout and how exactly everything is going to be financed, whether it can be energized, where it will be deployed, are questions that were much easier to answer six months ago than today,” said Rolf Bulk, head of semiconductors and infrastructure at research firm Futurum Group.
The uncertainty has direct implications for SoftBank because its investment strategy depends heavily on the continued expansion of the AI industry. A slowdown in infrastructure deployment, weaker valuations or more difficult financing conditions could affect several parts of its portfolio simultaneously.
SoftBank’s growing debt burden is becoming a major concern as the value of some of its major investments declines.
At the end of June, the company had net interest-bearing debt of 10.8 trillion yen ($68 billion), compared with 6.6 trillion yen a year earlier. The increase highlights the scale of borrowing accompanying its investment expansion.
Investors are particularly interested in whether SoftBank can continue using debt-backed financing to fund acquisitions and investments. Some of its largest holdings, including chip designer Arm, serve as collateral for loans, meaning declines in their market value could reduce borrowing flexibility or increase pressure on the company’s balance sheet.
Arm shares closed at $175 on Friday, around 60% below their record high in June. Jefferies analyst Atul Goyal wrote in a note last month that a sustained decline below $200 would increase pressure on SoftBank’s finances.
The broader AI stock selloff has already affected investor confidence in the Japanese group. SoftBank shares fell 11% on Friday, while the cost of insuring its debt against default reached a four-year high. The stock declined another 4.2% on Monday and is down 23% year to date.
The share-price performance suggests investors are assessing SoftBank not only as an investment company with valuable technology holdings, but also as a highly leveraged vehicle whose financial position is sensitive to movements in AI-related assets.
Bulk said SoftBank could be forced to take a more defensive approach if market conditions deteriorate.
“SoftBank may find itself in a position where they have to stop investing, de-lever and even sell down some of their positions,” he said. “Of course this is something they have done in the past.”
Such a shift would mark a change in emphasis from aggressive expansion towards protecting the balance sheet. SoftBank has previously sold down investments and adjusted its portfolio in response to changing market conditions, but the scale of its current AI commitments makes the consequences of any retrenchment significant.
Earnings Outlook and ABB Robotics Deal
SoftBank’s quarterly earnings are expected to be volatile, reflecting changes in the market value of its investments and the performance of its operating businesses.
Forecasts from three analysts surveyed by LSEG for July-to-September net profit range from a gain of 233 billion yen ($1.5 billion) to a loss of 113 billion yen.
The company is scheduled to release its results at 0630 GMT, followed by a briefing from Chief Financial Officer Yoshimitsu Goto at 0730 GMT.
Beyond the earnings figures, investors will be looking for guidance on future borrowing, the value of its investment portfolio and whether the company intends to slow its pace of acquisitions.
The other major issue is China’s decision to block SoftBank’s planned $5.4 billion acquisition of ABB’s robotics division. The setback complicates the company’s efforts to expand its exposure to industrial automation, a market closely linked to its broader ambitions in artificial intelligence and physical robotics.
ABB and SoftBank have remained optimistic that a solution can be found, and SoftBank is also in discussions with Chinese authorities, according to a person familiar with the matter.
Bloomberg News has reported that the companies are considering carving out ABB’s China business to address the regulatory obstacle. Such an arrangement could potentially allow the transaction to proceed without including the operations that triggered concerns in Beijing, although no final solution has been announced.
The outcome will matter beyond the immediate acquisition. Robotics is an important part of SoftBank’s longer-term investment thesis, which seeks to connect advances in AI with physical machines and industrial applications. Losing or restructuring the ABB deal could alter the company’s plans for building that exposure.
Tuesday’s results will therefore be assessed against a key question: can SoftBank continue financing its AI ambitions while managing rising debt, falling asset valuations and regulatory obstacles in key markets?
The company’s substantial OpenAI investment gives it exposure to one of the leading developers of advanced AI models, while its holdings in Arm and other technology businesses provide positions across the industry’s supply chain. However, those investments also leave SoftBank vulnerable to a prolonged correction in AI valuations.