SoftBank Group Corp. experienced a sharp decline in Tokyo trading on Tuesday, with shares plummeting 9.86% to close at 5,268 yen. The sell-off was triggered by reports that OpenAI, the creator of ChatGPT, had fallen short of its user and revenue targets, raising concerns about the viability of SoftBank's substantial investment in the AI firm.
OpenAI's Missed Targets and SoftBank's Exposure
According to a report from Reuters citing the Wall Street Journal, OpenAI's latest user and revenue metrics have trailed expectations. CFO Sarah Friar reportedly expressed concerns internally about the company's ability to cover upcoming data-center expenses if revenue growth does not accelerate. Compute costs, which encompass the servers and chips required to power AI models, remain a significant financial burden.
SoftBank's exposure to OpenAI is substantial. The company confirmed earlier this month that it had executed the first $10 billion tranche of a planned $30 billion follow-on investment via Vision Fund 2. Two additional $10 billion installments are scheduled for July 1 and October 1, both in Japan, with the initial payment funded through a bridge facility.
Market Reaction and Ripple Effects
The sell-off extended beyond SoftBank, affecting other companies with ties to OpenAI. Oracle Corp. fell 3.4%, CoreWeave slipped 2.8%, and Arm Holdings, a SoftBank subsidiary, tumbled 6.3%. Oracle reportedly secured a $300 billion compute deal with OpenAI, while CoreWeave signed an $11.9 billion contract last month.
Todd Schoenberger, chief investment officer at CrossCheck Management, noted that when one AI-linked stock takes a hit, it can trigger a "ripple effect across the board." Allan Small, senior investment adviser at Allan Small Financial Group with iA Private Wealth, suggested that the OpenAI worries reflect "just more competition" rather than a broader cooling of the AI sector.
Funding Strategy Under Scrutiny
SoftBank's funding strategy has come under increased scrutiny. Reuters, citing Bloomberg News, reported that the firm is seeking a $10 billion margin loan using its OpenAI holdings as collateral. Such loans, secured by securities, become riskier if the underlying shares decline in value. Additionally, SoftBank entered debt markets on April 16, setting terms for new senior notes in both dollars and euros, with proceeds intended to redeem existing foreign-currency senior notes and reduce the bridge loan tied to its OpenAI investments.
Corporate Governance and Dividend Proposals
Amid the stock pressure, SoftBank announced new board appointments, a dividend proposal, and details for its upcoming shareholder meeting. The company proposed Tetsuji Ohashi, a senior adviser at Komatsu, and Miwa Ohmori, an outside director from Mizuho Securities, as outside board members. A year-end dividend of 5.50 yen per share for the fiscal year ending March 2026 was also suggested.
Outlook and Key Dates
If OpenAI cannot accelerate revenue growth to match its rising expenses, SoftBank may face continued pressure on its share price and funding options. However, a rebound in OpenAI's sales or progress toward a major IPO could quickly alleviate those risks. SoftBank has scheduled its fiscal 2025 earnings release and briefing for May 13, with board and dividend proposals subject to a shareholder vote at the annual meeting on June 24.
