SoftBank raises $11 billion through junk bond sale to double down on aggressive AI investments

SoftBank's Record Junk Bond Sale Signals High-Stakes AI Gamble

SoftBank has completed a record $11 billion junk bond sale at its highest-ever yields, intensifying pressure on CEO Masayoshi Son to deliver returns on his all-in AI bet amid concerns about potential market overheating1

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. The debt issuance last month contributed to a sharp surge in corporate borrowing this year, joining major bond sales from Amazon, Alphabet, and Tencent2

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. The scale of Masayoshi Son's investments, particularly his $64.6 billion backing for ChatGPT maker OpenAI, has positioned the technology-and-investing conglomerate as a bellwether for AI sentiment3

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Aggressive AI Investments Drive Unprecedented Borrowing Strategy

SoftBank will pay its highest-ever coupon of 9.75% on a bond maturing in 2034, a stark contrast to Alphabet's 5.2% yield on a bond issued in August that matures in 20331

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. This aggressive AI investment strategy marks a shift from SoftBank's previous approach of selling shares in Nvidia and T-Mobile US to fund operations. Alex Clavel, CEO of SoftBank Investment Advisers, which manages the Vision Funds, explained the rationale: "We've borrowed money in large part because we don't want to sell assets that we believe will keep rising in value"4

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. Clavel defended the high yields, stating that "given OpenAI's appreciation to date, 9.75% is still very reasonable"2

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Portfolio Concentration Raises Investor Concerns

The SoftBank junk bond sale and Masayoshi Son's all-in AI bet are now facing sharper scrutiny from analysts and investors worried about portfolio concentration and whether payoffs from AI company expenditures will materialize quickly enough1

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. SoftBank's shares surged to a record high of 8,632 yen in June but have since fallen 38%, while credit default swap spreads jumped 24% over the same period2

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. MST Financial analyst David Gibson characterized the shift in SoftBank's AI strategy bluntly: "SoftBank was previously betting on a bunch of numbers at the roulette table. Now it's red or black, either lose everything or gain everything"4

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OpenAI Emerges as Core of High-Stakes Bet on AI

Sam Altman's OpenAI represents the centerpiece of the latest iteration of Son's AI-focused investment approach, following lucrative bets on Chinese tech giant Alibaba and chip designer Arm1

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. Arm's valuation has grown fivefold since it floated in 2023, and further listings from SoftBank's private AI portfolio could clarify asset values and enable easier monetization for additional investment activity2

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. However, Altman has stated OpenAI will not go public this year, citing safety concerns, while the company faces competition from rival Anthropic, hyperscalers, and low-cost Chinese labs4

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. Clavel emphasized the strategic nature of the relationship: "We see OpenAI as a partner, building a relationship that can deliver strategic value as well as financial returns"1

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Market Skepticism Mounts Over High-Risk High-Reward Approach

SoftBank's higher yields reflect investor perceptions of risk and concentration in large positions, according to analysts2

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. Amir Anvarzadeh of Asymmetric Advisors, who recommends shorting the stock, noted: "The bets are much bigger than we've ever seen"1

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. James Athey, a fixed-income portfolio manager at Marlborough, stated his fund was not allocating to high-yield bonds at this stage of the credit cycle, adding: "SoftBank is so aggressive, so concentrated and so all-in, I don't think we'd be looking there first anyway"4

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. OpenAI is also an investor in and customer of data centre company SB Energy, which SoftBank is looking to list and may seek a valuation of $50 billion2

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Mixed Track Record Complicates Assessment of AI Investment

Masayoshi Son's investment history presents a complex picture for evaluating his current AI investment strategy. While his bet on Alibaba proved enormously successful, Son also directed $16 billion to Adam Neumann's WeWork, which ultimately went bankrupt1

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. Other setbacks included a crash in the value of investments as central banks moved to hike rates in 20222

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. Clavel countered concerns by noting: "OpenAI's value appreciation to date far exceeds the losses in our 2021 vintage investments"4

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. Over the decades, Son has navigated market peaks and troughs to build SoftBank into a 30 trillion yen ($189.9 billion) company1

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Future Hinges on Workplace Transformation Through AI

The success of SoftBank's high-stakes bet on AI ultimately depends on whether artificial intelligence delivers the promised workplace transformation. Morningstar senior equity analyst Dan Baker explained: "Being priced in is a massive transformation of the workplace with AI effectively taking over a big chunk of what gets done with human brains now. If that goes ahead it's hard to see their investments not being very successful"2

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. MST's Gibson suggested SoftBank is capitalizing on market overheating: "SoftBank is taking advantage of hyper-excitement around AI-driven businesses, applying very high valuations for relatively low revenues, and they are looking to capitalize"1

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. Investors will be watching whether OpenAI and SoftBank's other AI investments can generate returns sufficient to justify the company's aggressive borrowing strategy and concentrated portfolio approach.