(Oct 22): SoftBank Group Corp’s market value halved from its peak in June, as higher borrowing costs fuel investor concerns over the sustainability of its massive investments in artificial intelligence (AI).

Shares of the Tokyo-based company fell 6.9% on Thursday, taking their drop from an all-time high struck on June 2 to 50%, with earnings from US megacaps failing to ease the angst. After briefly overtaking Toyota Motor Corp as Japan’s biggest company four months ago, its market capitalisation is now about ¥24.7 trillion (US$157 billion or RM642 billion), smaller than that of Hitachi Ltd and Recruit Holdings Co.

Global concerns over AI spending had accelerated after US-based cloud-computing provider CoreWeave Inc’s bonds fell to levels associated with distress, exposing financing risks across the industry. 

“SoftBank’s vulnerability stands out as investors increasingly scrutinise the financial health of AI-related companies, given the group’s highly leveraged financial structure and growing borrowing costs,” said Kazuyuki Muramatsu, the head of investment management at Nagomi Capital. If global sentiment towards the AI growth story turns sour, it may lead to valuation losses for SoftBank’s Vision Fund, which would in turn result in higher premium for future funding, he said.

The price to insure SoftBank’s debt against default has climbed, with credit-default swaps rising to the highest level in nearly four years on Tuesday. With the company relying on debt financing for much of its investments across the AI ecosystem, ranging from infrastructure and energy to robotics, CoreWeave’s troubles dented confidence even in equity investors who had earlier focused on returns from SoftBank’s AI bets. The stock is Nikkei’s worst performer so far this month, down more than 30% and wiping out all gains from September.

Rising competition among AI models also remains an overhang. OpenAI, in which SoftBank has invested almost US$65 billion, now faces more affordable Chinese rivals offering comparable performance.

SoftBank raised US$11.1 billion in September via the largest corporate junk bond sale on record to finance founder Masayoshi Son’s big AI ambitions.

Uploaded by Tham Yek Lee