SoftBank's market value crashes 50% as AI worries mount
What's the story
SoftBank Group has seen its market value cut in half since its peak in June, owing to rising borrowing costs and debt risks. The Tokyo-based company's shares fell 6.9% on Thursday, marking a 50% decline from an all-time high hit on June 2. The company's market cap now stands at about ¥24.7 trillion ($157 billion), smaller than Hitachi and Recruit Holdings. SoftBank briefly overtook Toyota Motor Corp as Japan's largest company four months ago.
Investor scrutiny
Concerns over AI spending
The global concerns over AI spending were heightened after US-based cloud-computing provider CoreWeave Inc.'s bonds plummeted to distress levels, revealing financing risks across the industry.
Kazuyuki Muramatsu, head of investment management at Nagomi Capital, said, "SoftBank's vulnerability stands out as investors increasingly scrutinize the financial health of AI-related companies."
He added that if global sentiment toward the AI growth story turns sour, it could lead to valuation losses for SoftBank's Vision Fund and higher premiums for future funding.
Financial indicators
Debt insurance costs surge
The cost of insuring SoftBank's debt against default has surged, with credit-default swaps hitting their highest level in nearly four years on Tuesday.
The company has been using debt financing for much of its investments across the AI ecosystem, including infrastructure and energy to robotics.
However, CoreWeave's troubles have dented confidence even among equity investors who were previously focused on returns from SoftBank's AI bets.
Market challenges
Stock performance and OpenAI investments
The stock of SoftBank is the worst performer on Nikkei this month, down over 30% and erasing all gains from September.
The company has invested nearly $65 billion in OpenAI, which now faces competition from cheaper Chinese rivals with similar performance capabilities.
In September, SoftBank raised a record-breaking $11.1 billion through the largest corporate junk bond sale to fund founder Masayoshi Son's ambitious AI plans.