By Anton Bridge
TOKYO, Nov 10 (Reuters) – SoftBank Group, the Japanese investment giant with big bets on AI, said on Tuesday it had swung to a second-quarter net loss of $7 billion, hit hard by hefty buildout costs for data centres in the US and increases in financing payments.
The pain inflicted this quarter by a subsidiary’s advance payments for power generation equipment could, however, be offset by rebates for future purchases. SoftBank’s borrowing may be of greater concern, with financing costs more than doubling during July-September.
The group raised $56.5 billion during the period — its highest ever quarterly total — as founder Masayoshi Son continues to pursue aggressive investment in artificial intelligence. That spending has spanned data centres, robotics as well as the $64.6 billion purchase of a 13% stake in ChatGPT maker OpenAI.
SoftBank said it logged a $3.7 billion loss due to advance payments for equipment in US data centre projects – including a large-scale development in Pike County, Ohio – after plans changed, but it added that it would be entitled to rebates of up to $2.1 billion on future purchases.
Intense competition around securing energy supply and power generation equipment for data centres led to buying before long- term specifications were finalized, Chief Financial Officer Yoshimitsu Goto told a press briefing in Tokyo.
These could not be refunded when cancelled and also incurred fees, Chief Accounting Officer Kazuko Kimiwada added.
“There are many cases where you have to change strategy for what you thought would probably have been OK a year or two ago,” Goto said.
“In the future, while we’re still in a sense doing things by trial and error, how to assess assets we no longer need may become a subject of discussion,” he added.
SoftBank’s earnings are volatile and difficult to predict.
The 1.1 trillion yen ($7 billion) second-quarter net loss far exceeded analysts’ forecasts and compares with a 2.5 trillion yen profit in the same period a year earlier when it logged a huge investment gain on an increase in the value of its stake in OpenAI.
AI SECTOR SETBACKS
The result is likely to intensify questions about how well SoftBank will weather setbacks currently buffeting the AI sector.
The Democratic Party’s sweeping success in US midterm elections last week heightened expectations of regulatory scrutiny, amplifying concerns that had been growing among investors about returns for the AI industry.
Though SoftBank’s shares surged 14% on Tuesday ahead of the results, they have, like other AI stocks, been battered by the cooling investor sentiment, almost halving in value since the start of June.
The sector was further rocked this week by the news that the FBI is looking at Jensen Huang, Nvidia’s CEO and the face of the AI boom, after his affair with a Chinese businesswoman alleged to be a spy for Beijing. SoftBank was a major investor in the AI chipmaker in the past but no longer holds a stake.
Nvidia has committed to investing $3 billion in SoftBank’s data centre development subsidiary SB Energy, which aims to go public.
SoftBank’s heavy borrowing at sometimes eye-popping yields has been a concern for some investors and its financing costs jumped to 462 billion yen in the quarter.
It is banking on the rising value of its holdings to outpace the interest payments on its debt.
CFO Goto declined to give details on OpenAI’s latest funding round, which people familiar with the matter have said values the firm at $1.25 trillion, but said it was highly likely that something would be announced in the third quarter.
Borrowing during the period included an $11.87 billion term loan, a $10 billion dollar-denominated corporate bond and a 1 trillion yen-denominated corporate bond.
SoftBank also increased the margin loan on its stake in chipmaker Arm by $5 billion to roughly $25 billion.
While SoftBank’s stake in TikTok-owner ByteDance generated an investment gain of $1.3 billion during the quarter, share prices of major public portfolio companies such as Coupang and Grab declined.
($1 = 157.9700 yen)
(Reporting by Anton Bridge; Editing by Sam Nussey, Miyoung Kim, Edwina Gibbs and Susan Fenton)
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