SoftBank CEO Masayoshi Son speaks at the company’s annual general meeting in Tokyo on June 20, 2024.
Kosuke Okahara | Bloomberg | Getty Images
Shares of the Japanese giant closed at a record high of 11,190.00 Japanese yen on Thursday, a far cry from the dotcom crash of the early 2000s and a more recent downturn for the company during the tech market turmoil of 2021 and 2022.
Son founded SoftBank in 1981, when it was a software company. It went public in Japan in 1994 and, in the midst of the Internet boom, made a $2 million investment in Yahoo in the middle of that decade.
This is how the company’s technological investments began.
The rise of the Internet and Yahoo pushed SoftBank’s stock to a record closing price of 10,111.1 yen on February 18, 2000. Three days earlier, the company’s shares had hit an intraday high of 11,000 yen.
As Internet stocks collapsed, SoftBank’s stock price also collapsed, at one point falling more than 90% below its peak during the Internet bubble.
It was not until nearly 21 years later, on February 16, 2021, that SoftBank surpassed its previous closing record.
The recent surge in the stock price to a record high has been volatile since Son positioned SoftBank as a visionary pioneer with the launch in 2017 of a massive technology investment arm – the Vision Fund.
SoftBank has made dozens of bets on tech companies around the world, some of which have gone sour. Office-sharing startup WeWork was perhaps one of the most prominent names. But some of SoftBank’s investments in Chinese companies also took a hit after Beijing launched its crackdown on the country’s tech sector in late 2020.
After stalling near record highs in March 2021, SoftBank’s stock has fallen sharply, along with other global tech stocks. The Vision Fund posted record financial losses in 2022. Son said SoftBank would go into “defense” mode and be more cautious in its investments. He changed course shortly after the Vision Fund posted a record $32 billion loss in 2023, saying the company would now go “offensive” as he was excited about the investment opportunities in AI.
SoftBank’s stock price began to recover from around May 2023, and the Japanese titan’s Vision Fund has more recently posted better financial results amid a broader rally in tech stocks.
“Softbank Vision Fund has had to write down several investments due to a combination of declining stock values and a more challenging private funding environment. It appears that the write-down cycle is largely over, and there is a good chance that the IPO market will be more constructive going forward, particularly for AI-related investments,” Oliver Matthew, head of Asia consumer research at CLSA, told CNBC via email.
Several analysts have attributed SoftBank’s recent share price surge of about 78% since the start of the year to the success of the IPO of Arm, which it acquired in 2016.
SoftBank owns about 90% of Arm even after the IPO. Arm shares alone are up nearly 124% this year, as of the close on July 3.
“SoftBank Group’s investment strategy and focus has long included developing an AI ecosystem portfolio, well before the LLM (large language model)-driven bull run in AI-related names over the past 18 months or so,” Paul Golding, senior U.S. lifestyle and payments analyst at Macquarie U.S. Equity Research, told CNBC via email.
“This vision, in our view, likely motivated part of the investment decision made in 2016 to acquire Arm, giving SoftBank Group direct exposure to semiconductor market dynamics and ownership of intellectual property around semiconductor design well ahead of broader advances in AI use cases and platforms.”
SoftBank’s shares “have benefited from that relative to high-profile uses” of Arm’s intellectual property, such as in the automotive industry or in cloud data centers, Golding added.
Over the years, investors have focused on whether SoftBank Group’s valuation accurately reflects the assets it has invested in or holds.
For example, SoftBank’s valuation is around $101.5 billion. Arm’s market cap is around $176 billion, meaning that SoftBank’s 90% stake is worth around $158 billion of that figure. This figure alone is significantly higher than the overall valuation of SoftBank Group, without taking into account the company’s other holdings and businesses, such as its telecommunications arm.
Analysts cite this as one reason why SoftBank’s stock price does not reflect its fair value.
Dan Baker, senior equity analyst at Morningstar, said much of SoftBank’s price appreciation is due to Arm.
“I’m not sure investors are sold on the SoftBank story again,” Baker told CNBC via email, adding that the stock’s rally this year is “primarily” driven by the rise in Arm stock, while the Japanese yen has weakened. Baker said it’s helpful to look at the so-called sum-of-the-parts (SOTP) valuation, which assigns a value to the different parts of SoftBank’s holdings, to determine the company’s value. Baker said the SOTP valuation remains just below 50% this year, meaning SoftBank’s stock doesn’t truly reflect the value of its various businesses and investments.
“So I’m not sure investors are ‘buying the SoftBank story,’ but they are certainly buying the ARM story,” Baker said.
Investors also welcomed SoftBank’s sale of nearly all of its stake in Alibaba, the Chinese e-commerce giant that Son backed in 2000.
SoftBank has also likely been helped by a recent broader rally in Japanese stocks, with the Nikkei 225 index up 22% this year alone as of Thursday.
But can Son’s focus on AI further increase SoftBank’s value and reduce the discount to its basket of assets?
The SoftBank founder, who stepped away from the spotlight last year, recently spoke about his excitement about the future of AI and how SoftBank can be at the center of that technology with its investment in companies like Arm.
Last month, Son outlined his vision of a world with what he calls artificial superintelligence, or ASI, that would be 10,000 times smarter than humans.
It comes at a time when investors are frantically looking for ways to capitalize on the AI boom, with Nvidia’s parabolic share price rise underscoring the excitement around the technology.
CLSA’s Matthew said SoftBank’s discount could narrow in the future thanks to some of the company’s early investments in AI.
“Softbank has been absolutely consistent in its investment direction; they were among the first investors to get into the AI theme, and in some ways too early, so many investors felt they were overpaying or buying into certain companies where the connection to AI was unclear,” Matthew said.
“As a result, Softbank Group shares are trading at a surprisingly large discount to fair value, and we believe this discount will narrow going forward.”
