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Banking on AI and a possible favourable outcome of pulling itself out of mounting losses this year, Japanese investment holding company SoftBank recently announced its plans for a likely investment in OpenAI. Founder and CEO of SoftBank, Masayoshi Son said that he is looking to invest ‘tens of billions’ in AI, and OpenAI is a potential company.
So, will OpenAI turn the tables for SoftBank that posted a staggering net loss of $3.3 billion?
Opportunity in the Making
Son categorises himself as a heavy user of ChatGPT. However, when it came to investing in AI companies, Son had been waiting on the sidelines to date. But not anymore. SoftBank, which was believed to rapidly invest in growing companies at one time, prioritising speed over anything else, is now changing its approach.
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When OpenAI CEO Sam Altman visited Japan a few months ago, he spoke about expanding and opening an office in the country. Altman also spoke about how he wishes to build models that incorporate Japanese language and culture. As a prelude to what might materialise four months later, Altman’s vision and Son’s ambition to invest in OpenAI may not be too surprising. AIM too had predicted a possible future partnership between the two companies.
According to a report from The Information, OpenAI is poised to exceed $1 billion in revenue over the next 12 months. This significant revenue projection stands in contrast with OpenAI’s earlier estimate of $200 million for the current year. The company is said to be recording a monthly revenue of over $80 million, a substantial increase compared to the $28 million it earned in the entirety of the previous year.
With growth happening in leaps and bounds for the company, SoftBank’s willingness to invest in OpenAI might just be the right step towards guaranteeing positive returns. Given SoftBank’s recent streak of unfavourable luck in the last few quarters, investing in a heavy-weight company like OpenAI could serve as a lifeboat for the company.”
AI: Here, There, Everywhere
SoftBank’s ambition to capitalise on the AI boom was apparent since June with Son explaining the company’s plan for shifting gears from a ‘defence mode’ to an ‘offence mode‘. Calling the past few year’s approach “defensive”, owing to a shortage of ‘cash in hand’, Son said, the new approach would likely push the company to invest aggressively in a number of frontier tech companies.
SoftBank had acquired British chip designer company Arm in 2016 for $32 billion. Recently, Arm had a bumper IPO, raising $4.87 billion for SoftBank, making it the largest US listing in two years. The valuation of the company touched $65 billion. Arm designs chips for devices such as smartphones and game consoles, and the recent valuation will only boost SoftBank’s entry in the AI market. Interestingly, in 2022 NVIDIA wanted to purchase Arm from SoftBank for $40 billion but dropped the plan.
The investment company is now focusing on ‘next-generation AI with high growth potential’ as a means to achieve profitability. In August, SoftBank disclosed that as of June end, 343 of its portfolio companies had declined in value, while 112 companies witnessed a value gain. The company admitted to having unfavourable performance over the last few quarters, and looked to turn it around. In the last quarter, the company made $1.8 billion investments that surpasses its cumulative activity from preceding three quarters.
SoftBank’s foray into AI companies is going in full swing and in a latest development, the company is leading a $280 million funding round in Mapbox, a location-mapping company whose software is housed behind in-car navigation systems of Toyota, BMW, General Motors, and others. With vehicles shifting towards an autonomous space, the implementation of AI will be more than ever. SoftBank had previously invested in Mapbox in 2017 and achieved a $1.2 billion valuation in April 2020.
SoftBank has also invested in Agile Robots, Brain Corp, IonQ (quantum), and many others in the AI space.
An Expensive Blunder
One of the biggest miscalculations that SoftBank made was losing trust in NVIDIA. In January 2019, Softbank sold its entire portfolio of NVIDIA shares worth $3.63 billion at a share price of $33. And then, NVIDIA experienced explosive growth and its share price reached as high as $460, making SoftBank’s sold stake worth $45.91 billion today.
In April this year, Softbank sold shares of Chinese e-commerce giant Alibaba, worth $7.2 billion which has been facing a decline in market cap. This follows a $29 billion selldown from the previous year — bringing down SoftBank’s stake in the company to 3.8% from 34% a few years ago.
Learning from past mistakes, and riding high on Arm IPO, it is clear that SoftBank is desperately trying to get back what it lost. If the OpenAI investment deal goes through, it would probably mark one of the best deals SoftBank could bank on.