Japanese investment conglomerate SoftBank Group has reported a second-quarter net loss of approximately USD 7 billion, with heavy spending on US data centre projects and rising financing costs weighing heavily on its financial performance.
The latest financial numbers also come as a setback for SoftBank founder Masayoshi Son, who continues to pursue an aggressive investment strategy centred on artificial intelligence (AI), despite growing uncertainty surrounding returns from the sector.
SoftBank recorded a net loss of 1.1 trillion yen (USD 7 billion) for the July-September quarter, significantly exceeding analysts’ expectations.
The result marked a sharp reversal from the 2.5 trillion yen profit reported during the corresponding period a year earlier, when the company benefited from a substantial increase in the valuation of its stake in ChatGPT developer OpenAI.
One of the biggest contributors to the latest loss was a USD 3.7 billion charge linked to advance payments for equipment intended for US data centre projects, including a large-scale development in Pike County, Ohio.
Changes in project plans meant that some of the equipment commitments could not be fulfilled as originally intended.
SoftBank said it could recover up to USD 2.1 billion through rebates on future purchases, offering some relief from the financial impact.
Chief Financial Officer Yoshimitsu Goto said intense competition to secure electricity supplies and power generation equipment for data centres had forced the company to make purchasing commitments before long-term project specifications were finalised.
Chief Accounting Officer Kazuko Kimiwada added that the advance payments could not be refunded following the cancellations and had also resulted in additional fees.
Goto acknowledged that changing strategies had become increasingly common in the rapidly evolving AI infrastructure market, adding that the company might need to reassess its strategies around valuing assets that SoftBank sees no longer required.
The Japanese group raised USD 56.5 billion during the July-September period, its highest-ever quarterly fundraising total, as Son continued to expand the company’s AI portfolio, despite the sector turmoil.
SoftBank’s present investment portfolio spans data centres, robotics and advanced computing infrastructure, alongside its USD 64.6 billion acquisition of a 13% stake in OpenAI.
However, investor sentiment toward AI-related stocks has weakened recently.
The changing political environment in the US has added another layer of uncertainty.
The Democratic Party’s sweeping success in this month’s US midterm elections has raised expectations of increased regulatory scrutiny, adding to concerns about the future profitability of the AI industry.
Beyond its data centre spending, SoftBank’s growing dependence on debt financing is emerging as another significant concern.
The company’s financing costs more than doubled during the July-September quarter, reaching 462 billion yen.
Its borrowing during the period included an USD 11.87 billion term loan, a USD 10 billion dollar-denominated corporate bond and a one trillion yen-denominated corporate bond.
SoftBank also increased the margin loan secured against its stake in semiconductor designer Arm by USD 5 billion, taking the total to approximately USD 25 billion.
The company is effectively betting that appreciation in the value of its investment portfolio will outpace the interest payments and other costs associated with its borrowing.
However, the strategy carries risks if valuations of major technology companies decline or financing becomes more expensive.
Goto declined to provide details about OpenAI’s latest funding round, which people familiar with the matter have said values the company at approximately USD 1.25 trillion. However, he indicated that an announcement was highly likely during the third quarter.
SoftBank’s investment portfolio has also delivered mixed results.
Its stake in TikTok parent ByteDance generated an investment gain of USD 1.3 billion during the quarter, while the share prices of other major portfolio companies, including Coupang and Grab, declined.