SoftBank's stock price halves from its June high, AI financing risks spark market concerns

SoftBank Group's share price remains under sustained pressure, with its market value having more than halved from its June peak, reflecting deep-seated market doubts about the sustainability of the artificial intelligence investment boom.

On Thursday, SoftBank's shares fell 6.9% in a single day, bringing the cumulative decline to 50% since hitting a record high on June 2. Its market value has shrunk to about 24.7 trillion yen (roughly $157 billion), falling behind Hitachi and Recruit Holdings, a far cry from four months ago when it briefly overtook Toyota Motor to become Japan's most valuable company. Earnings reports from major U.S. technology companies failed to lift market confidence, and SoftBank became the worst-performing constituent of the Nikkei index this month, falling more than 30% during the month and giving back all of its gains since September.

The trigger for this selloff came from cloud computing service provider CoreWeave. The company's bond prices fell to distressed levels, sparking widespread concerns about financing risks across the AI industry. At the same time, the cost of insuring against a SoftBank debt default has risen sharply, with credit default swap (CDS) spreads climbing on Tuesday to their highest level in nearly four years, as investors' wariness of its highly leveraged structure has clearly intensified.

CoreWeave shockwave spreads, AI financing risks surface

CoreWeave's bond prices falling into distressed territory became the key trigger for this round of market turmoil, exposing systemic financing risks along the AI infrastructure investment chain.

SoftBank's Vision Fund has an extensive presence across the AI ecosystem, with investments spanning infrastructure, energy and robotics, and relies heavily on debt financing to support its vast investment portfolio. CoreWeave's liquidity troubles have shaken the confidence of equity investors who had previously focused on betting on AI returns, and SoftBank's financial fragility has been thrust into the spotlight.

Kazuyuki Muramatsu, head of investment management at Nagomi Capital, said: "Given SoftBank's highly leveraged financial structure and rising financing costs, SoftBank's vulnerability is becoming increasingly apparent as investors scrutinize the financial health of AI-related companies more closely." He further noted that if global market sentiment toward the AI growth story turns, it could lead to valuation losses at the Vision Fund, which would in turn push up the risk premium on future financing, creating a vicious cycle.

SoftBank only completed a record-breaking fundraising in September this year to support founder Masayoshi Son's ambitious AI plans, and now finds itself squeezed on two fronts by rising borrowing costs.

In September this year, SoftBank raised $11.1 billion through the issuance of corporate junk bonds, setting a record for the largest corporate junk bond issuance in history. However, as global borrowing costs climb, the potential risks of this highly leveraged strategy are being repriced by the market. SoftBank's CDS spreads have risen to a near four-year high, indicating that creditors' concerns about its debt-servicing capacity have clearly intensified.

It is worth noting that SoftBank's investment in OpenAI has reached nearly $65 billion. However, OpenAI is facing challenges from low-cost Chinese AI competitors that offer comparable performance at more affordable prices, which brings additional uncertainty to valuation expectations for SoftBank's core asset and raises questions about whether its massive bet can deliver returns. Risk disclosure and disclaimer

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