SoftBank Shares Plunge Over 11%, High-Leverage AI Bets Spark Market Concerns

TradingKey - During the Asian session on June 4, SoftBank Group shares plummeted more than 11%, marking their largest single-day drop in months. The tech investment giant is facing renewed market scrutiny over its highly leveraged AI betting strategy, as a broad sell-off in overnight US tech stocks accelerated the correction.

[Source: TradingView]

SoftBank shares closed at 7,377 yen on Thursday, down approximately 11.28%. The stock's year-to-date gain had previously exceeded 70%, and it briefly surpassed Toyota at the start of the week to become Japan's most valuable company by market capitalization.

The trigger for the plunge was the re-escalation of tensions in the Middle East, leading to a broad decline in overnight US stocks. Risk-off sentiment quickly spread to Asian markets, with the Nikkei 225 index closing down 1.36% on the day; SoftBank was one of the most significant individual stocks dragging down the broader market.

SoftBank's decline far outpaced the broader market, as its unique balance sheet structure became a focal point. According to S&P Global Ratings, SoftBank's interest-bearing debt on a standalone basis is projected to reach approximately 16.3 trillion yen (around $104 billion) by the end of 2025. In March, SoftBank secured an additional $40 billion in bridge loans for further investment in OpenAI. S&P downgraded SoftBank's credit outlook from "stable" to "negative" in March, citing that the additional investments would impair its asset liquidity and credit quality.

SoftBank's core holdings are highly concentrated in chip design firm Arm ( ARM) and AI company OpenAI. SoftBank holds approximately 90% of Arm, whose valuation is highly correlated with global expectations for AI chip demand.

Regarding OpenAI, SoftBank has committed a total of approximately $64 billion in investments, of which about $34.6 billion has been deployed, representing a stake of roughly 13%. S&P estimates that after an additional $30 billion investment, OpenAI's weight in SoftBank's portfolio will rise to approximately 30%, roughly equal to that of Arm.

Gil Luria, head of technology research at D.A. Davidson, stated, "SoftBank has positioned itself as a highly leveraged AI bet, which holds immense upside potential but also carries significant risks."

Jay R. Ritter, professor emeritus at the Wharton School, was more blunt: "Buying SoftBank is a leveraged bet on OpenAI. If OpenAI performs well, the leverage is a tailwind; if it underperforms, the leverage will backfire."

The competitive landscape of AI is shifting rapidly, which has also exacerbated market concerns. SpaceX plans to IPO on June 12, and Anthropic has confidentially filed for listing. While these IPOs do not directly impact SoftBank's fundamentals, market sentiment is already fragile, and any talk of "AI capital diversion" could be magnified.