Shares of SoftBank Group (TYO:9984) tumbled 7.06% to ¥5,500 at the close of trading in Tokyo on Friday, erasing approximately ¥2.4 trillion in market capitalization. The sell-off came amid mounting investor anxiety over the sustainability of the company's massive AI-related funding commitments and a widening gap between its market valuation and founder Masayoshi Son's declared asset value.
Catalyst from Alphabet
The decline was triggered by a 7% slide in Alphabet (NASDAQ:GOOGL) shares, which fell after the Google parent reported its first-ever quarterly cash outflow. Alphabet also raised its projected 2026 capital spending by $15 billion, stoking fears that the AI arms race is consuming cash faster than expected.
SoftBank's exposure to AI funding made it particularly vulnerable. The company financed its first two $10 billion tranches of OpenAI follow-on funding through bridge loans, with a third $10 billion tranche scheduled for October 1. The total OpenAI investment would bring SoftBank's funding to $64.6 billion, and once finalized, the company projects its stake at approximately 13%.
Valuation Gap Widens
Initial calculations show that the difference between SoftBank's market valuation and Son's declared asset value has widened to approximately 57.5%. On Friday, the company's market cap stood at ¥31.42 trillion, compared to Son's stated asset value of ¥74 trillion. This gap has grown from about 50% on June 24, reflecting persistent investor skepticism.
As of March 31, SoftBank's net asset value (NAV) was ¥40.06 trillion, with net debt of ¥8.21 trillion and a loan-to-value (LTV) ratio of 17.0%. Arm Holdings (NASDAQ:ARM) accounted for 39.7% of reported equity assets. Friday's market value decline of ¥2.4 trillion represents about 29% of stated net debt, underscoring how rapidly investor sentiment can shift on funding risk.
AI Sector Drag
Japan's AI-related stocks also suffered on Friday. Kioxia Holdings (TYO:285A) fell 9.49%, Advantest (TYO:6857) dropped 6.02%, and Tokyo Electron (TYO:8035) slipped 4.99%. The Nikkei 225 declined 2.73% to 64,611.15.
Kazuaki Shimada, chief strategist at IwaiCosmo Securities, attributed the moves to external factors. "The (Nikkei) index has been affected by overseas factors, not local cues," he said. Shimada also raised concerns about whether investment in AI infrastructure can be sustained, a question that now looms over the entire sector.
Upcoming Catalysts
SoftBank's near-term outlook hinges on several key events. Arm is scheduled to report fiscal first-quarter earnings on July 29, and its outlook serves as the most visible short-term catalyst for SoftBank's asset value. Microsoft (NASDAQ:MSFT), Meta Platforms (NASDAQ:META), and Amazon.com (NASDAQ:AMZN) are also due to report next week, with their investment plans likely to impact the sector's funding premium.
The Bank of Japan is set to review monetary policy on July 30-31, with the benchmark rate widely expected to remain steady at 1%. SoftBank will announce its first-quarter results on August 6, with investors focused on LTV, progress on bridge-loan refinancing, and revisions to asset valuations.
Risk Profile
Despite Son dismissing concerns about an AI bubble as "absurd" on July 14, Friday's trading indicated that investors continue to demand more concrete cash returns. Risks remain heavily concentrated: NAV could fluctuate rapidly due to Arm volatility, yen movements, private OpenAI valuations, and refinancing costs. However, increased risk appetite could quickly reduce the valuation gap.
In the meantime, SoftBank is acting more as a leveraged play on worldwide AI investment than as a traditional conglomerate, leaving it exposed to the shifting sentiment around AI spending.
