Record Debt Puts Son’s AI Ambitions Under the Microscope
SoftBank’s record $11 billion junk-bond offering underscores the mounting pressure on CEO Masayoshi Son to deliver returns from his ambitious artificial intelligence strategy. The company agreed to pay its highest-ever bond yield of 9.75%, a rate that reflects growing concerns about the risks behind its substantial AI commitments. Its debt sale also adds to a sharp increase in corporate borrowing this year, alongside major bond offerings from Amazon, Alphabet, and Tencent. These developments have placed SoftBank’s financial decisions under closer scrutiny as investors assess whether enthusiasm for AI can justify increasingly expensive capital.
At the center of these concerns lies SoftBank’s $64.6 billion commitment to OpenAI, the creator of ChatGPT, which has become the cornerstone of Son’s latest investment strategy. The scale of this commitment has made the technology and investment conglomerate a key indicator of market sentiment toward AI. Analysts and investors now question whether SoftBank’s concentrated portfolio exposes the company to excessive risk, particularly if AI companies cannot generate sufficient returns soon enough. For Son, the challenge extends beyond securing capital, as he must demonstrate that the potential value of his AI investments can justify the financial risks.
The Price SoftBank Pays to Keep Its AI Bets Intact
The financial pressure behind SoftBank’s AI strategy becomes clearer through its recent shift toward debt. The company previously sold shares in Nvidia and T-Mobile U.S. to finance its investments, but it now prefers borrowing to retain assets it expects to appreciate. Alex Clavel, CEO of SoftBank Investment Advisers, explained that the company borrowed largely because it did not want to sell assets it believed would continue to rise in value. This approach allows SoftBank to preserve its existing positions while securing capital for further investment.
However, this strategy comes at a substantial cost, as SoftBank agreed to pay a record 9.75% coupon on a bond that matures in 2034. The rate stands well above the 5.2% yield Alphabet offered on a bond issued in August that matures in 2033. Such a difference reflects investors’ perceptions of SoftBank’s risk and its concentration in large investment positions. Clavel defended the expense by arguing that OpenAI’s appreciation to date makes the 9.75% yield reasonable. His assessment rests on the expectation that the value of SoftBank’s AI assets will justify the high cost of its debt.
Market indicators, meanwhile, suggest that investors have grown more cautious about SoftBank’s financial position. Its shares reached a record high of ¥8,632 in June before falling 38% from that peak. Over the same period, credit default swap spreads rose 24%, increasing the cost of insurance against a default or another credit event. These movements highlight concerns about the company’s risk profile as its AI commitments become more substantial. Amir Anvarzadeh of Asymmetric Advisors noted that SoftBank’s current bets exceed anything investors have seen before, and he recommends shorting its stock.
Beyond market volatility, SoftBank’s concentrated exposure raises questions about the broader risks of its borrowing strategy. James Athey, a fixed-income portfolio manager at Marlborough, said his fund was not allocating to high-yield bonds at this stage of the credit cycle because credit spreads remained tight. He also described SoftBank as too aggressive and concentrated to warrant initial consideration for the fund. Such concerns reflect the difficulty of assessing whether potential AI returns can compensate for the risks associated with substantial debt and concentrated investments. For SoftBank, the central challenge remains whether its most valuable assets will appreciate enough to justify the financial burden of retaining them.
OpenAI Holds the Key to Son’s High-Stakes Investment Strategy
SoftBank’s concentrated portfolio places OpenAI at the center of Masayoshi Son’s strategy and its prospects for future financial returns. Alex Clavel, CEO of SoftBank Investment Advisers, described OpenAI as a partner whose relationship with SoftBank could deliver strategic value alongside financial gains. Clavel also argued that OpenAI’s appreciation to date makes SoftBank’s record 9.75% bond yield reasonable. However, this strategy depends on whether OpenAI’s future value can justify the substantial financial commitments that SoftBank has made.
One possible route to clearer valuations lies in public listings of SoftBank’s private AI assets, which could help the company assess their worth and support further investments. Arm’s valuation has increased fivefold since its public offering in 2023, illustrating the potential gains associated with a successful listing. OpenAI CEO Sam Altman has said the company will not go public this year, citing AI safety concerns. Meanwhile, OpenAI faces competition from Anthropic, major cloud computing companies known as hyperscalers, and low-cost Chinese AI laboratories. These obstacles create uncertainty about OpenAI’s future prospects and when SoftBank might realize returns from its investment.
SoftBank also has a strategic relationship with SB Energy, a data center company in which OpenAI serves as both an investor and customer. SoftBank plans to list SB Energy and may seek a valuation of $50 billion. MST Financial analyst David Gibson said SoftBank seeks to capitalize on intense enthusiasm for AI businesses through high valuations despite relatively low revenues. His assessment raises questions about whether such valuations accurately reflect the companies’ underlying financial performance. If expectations prove too optimistic, SoftBank could struggle to justify its commitments and secure additional capital for future investments.
Son’s investment history provides evidence of both remarkable success and significant setbacks. His investment in Chinese technology giant Alibaba proved highly lucrative, but his decision to direct $16 billion toward Adam Neumann’s WeWork ended in bankruptcy. SoftBank also suffered substantial investment losses after central banks raised interest rates in 2022. Clavel maintained that OpenAI’s appreciation to date far exceeds the losses from SoftBank’s 2021 vintage investments. Nevertheless, the mixed results of Son’s past decisions underscore the risks of a strategy that now depends heavily on OpenAI and the broader promise of artificial intelligence.
Son’s Next Move Will Test the Promise of an AI Economy
Ultimately, SoftBank’s strategy rests on whether artificial intelligence can deliver returns that justify its unusually high borrowing costs and substantial financial commitments. Masayoshi Son has navigated market peaks and downturns over decades, building SoftBank into a company valued at ¥30 trillion, or $189.9 billion. His record includes a lucrative investment in Alibaba, but also costly setbacks such as WeWork’s bankruptcy and losses after central banks raised interest rates in 2022. These contrasting outcomes demonstrate how ambitious investments can produce extraordinary gains or expose companies to substantial financial risks.
Morningstar senior equity analyst Dan Baker believes AI could transform workplaces by assuming a substantial share of tasks that human brains currently perform. If this transformation occurs, he argues, SoftBank’s investments could prove highly successful. However, the company must contend with concentrated exposure, expensive debt, and uncertainty about when its AI investments will generate sufficient returns. Son’s strategy will ultimately depend on whether the economic value of AI fulfills expectations and supports the scale of SoftBank’s financial commitments.