SoftBank Group, a major player in global technology investments, has found itself grappling with significant financial hurdles following two consecutive quarters of profitThe Vision Fund, its flagship investment arm focused primarily on technology investments, once again reported losses, leading to concerns about the future direction of the fund and the group as a whole.

On February 12, the company released its financial report for the third quarter of 2024 (from October to December), revealing a staggering net loss of 369.17 billion yen (approximately $2.41 billion), exceeding market expectations by a considerable marginThis disquieting news underscores that the Vision Fund has once again emerged as the leading cause behind SoftBank’s losses, with the fund itself suffering a net loss of 352.7 billion yen (about $2.31 billion) during the quarter.

Just a few days prior, on February 7, SoftBank had captured market attention by announcing a planned investment of $40 billion in OpenAI, which would value the firm at a massive $260 billion, potentially making SoftBank the largest investor in the AI companyYet, the subsequent financial report starkly contrasted that optimistic intention, revealing substantial cash flow challenges and looming risks of deeper losses.

In a press conference following the release of the financials, SoftBank reiterated its commitment to investing in artificial intelligenceHowever, as new entrants like Deepseek disrupt established AI pathways, it remains to be seen whether OpenAI can maintain its towering valuation in order to attract further investmentsThe uncertainty around profitability within such a dynamic sector prompts a closer examination of SoftBank's strategic decisions following these recent setbacks.

According to the reported numbers, the Vision Fund remains the main source of SoftBank’s woesThe company's net loss of 369.17 billion yen marks a stark reversal from the 1.18 trillion yen profit (roughly $7.72 billion) reported in the previous quarter, highlighting a significant downturn in financial performance

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This downturn is primarily attributed to a massive investment loss of 352.7 billion yen linked to the Vision Fund, revealing a stark contrast to the previous quarter’s profit of 608.4 billion yen (approximately $3.98 billion).

Market analysts have suggested that the depreciation of equity is a leading factor in SoftBank’s financial woesThe Vision Fund has heavily invested in various technology startups across Southeast Asia and East Asia, many of which have seen substantial drops in their valuations recently, contributing to the losses reported by SoftBank.

The Vision Fund consists of multiple sub-funds, specifically the first Vision Fund (SVF1), the second Vision Fund (SVF2), and the LatAm FundsIn the reporting period, SVF1 recorded a net loss of $1.2 billion, driven largely by a plunging share price of Coupang, South Korea's largest e-commerce platform.

Meanwhile, the losses from the second Vision Fund were even more pronounced, clocking in at $2.9 billion during the same periodThis was primarily due to drastic drops in the stock prices of Ola Electric Mobility Ltd., India's largest electric scooter manufacturer, and AutoStore, a Norwegian warehouse automation companyCumulatively, since its inception, this fund reported a staggering total loss of $16.2 billion.

Since its establishment, SoftBank’s Vision Fund has experienced extreme volatility in performanceSpecifically, since its inception in 2017, the first Vision Fund has invested a total of $89.5 billion, yielding cumulative returns of approximately $11.11 billion, while the second Vision Fund, established in 2019, has seen a total investment of $55.2 billion with returns of only $3.3 billion but total losses amounting to $22.2 billionNotably, in the second quarter of 2022, the Vision Fund recorded an unprecedented investment loss of 2.93 trillion yen for that quarter alone.

Additionally, it is important to highlight that SoftBank is experiencing an urgent cash flow crisis despite its financial difficulties

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The report indicated that, up to the end of December last year, the net cash inflow from operating activities was approximately 149.228 billion yen (around $943 million), against a hefty investment outflow nearing 589.188 billion yen (approximately $3.73 billion).

More specifically, the Vision Fund utilized about 249.1 billion yen (approximately $1.58 billion) for investments, while SoftBank Group and its fully owned subsidiaries invested 566.5 billion yen (around $3.58 billion) for acquisitions and other investmentsCombined, these outflows of around 814.6 billion yen (about $5.2 billion) eclipsed the cash generated from divestments and returns, which stood at 336.7 billion yen and an additional 387 billion yen (approximately $2.25 billion), respectively.

The financial report also disclosed that approximately 558.2 billion yen (about $3.53 billion) was spent on intangible and fixed asset investments during the reporting period.

Even amidst stark losses and cash flow challenges, SoftBank remains committed to bolstering its investments in artificial intelligenceThe strategy further continues to unfold, as seen in the earlier investments of $5 billion made in September last year, followed by an additional $1.5 billion directed toward OpenAI in January 2025. In late January, SoftBank partnered with OpenAI and Oracle on the ambitious "Stargate" project, which aims to invest $500 billion into AI infrastructure within the U.S. over the next four years, with SoftBank itself planning to contribute $100 billion in the coming yearOn February 3, the company announced plans to establish a joint venture with OpenAI in Japan to develop bespoke software geared towards enterprise data.

On the same day the financial report was released, SoftBank’s management outlined a broad AI infrastructure project and expressed intentions to adjust their core business focus, emphasizing collaboration with OpenAIThe CFO, Yoshimichi Goto, asserted that the group plans to develop artificial superintelligence (ASI) that would operate a staggering 10,000 times more intelligently than humans, targeting foundational sectors such as chips, data centers, power, and robotics.

An industry analyst noted that SoftBank is shifting its focus from merely investing in AI-related businesses through the Vision Fund to constructing AI infrastructure in more tangible domains

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However, investors are rightfully anxious about how SoftBank plans to fund this strategic transition in light of its recent financial struggles.

Moreover, the elevated level of investment proposed in OpenAI raises further questionsGiven the disruptions in the global AI landscape stemming from competition, it is uncertain whether SoftBank can maintain OpenAI’s inflated valuation long enough to secure significant investor interest.

In response to these challenges, SoftBank plans to employ a “project financing” model to secure additional fundsThis financing approach, typically associated with capital-intensive projects in sectors like telecommunications or energy development, sees a market size of approximately $350 to $380 billion annually, with potential fund sources including banks, private equity funds, pension funds, and insurance companies.

Additionally, in the "Stargate" initiative, SoftBank, OpenAI, and Oracle will together bear 10% to 20% of the project's financial responsibilities, while the remainder (80% to 90%) will be sought through external loans and collaborations.

Nevertheless, some analysts have expressed skepticism regarding SoftBank's financing capabilitiesAtul Goyal, managing director at Jefferies Asia, voiced concernsDespite SoftBank's stake in ARM Holdings, valued between $120 billion and $130 billion, Goyal pointed out that any sale of ARM shares could lead to significant stock volatilityFurthermore, he highlighted that SoftBank's net debt levels are already alarmingly highOver the past five to six years, Masayoshi Son, the firm's founder, has notably struggled to attract new external investors.

According to Goyal, persuading other investors to fund the "Stargate" project will prove particularly challenging as the nature of the investment differs from established tech giants like Nvidia or Broadcom; immediate capital returns or cash flows are not guaranteedFor potential investors, backing the "Stargate" project represents predominantly a capital expenditure, lacking compelling reasons to invest in SoftBank’s strategy at this juncture.

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