SoftBank becomes Japan's most valuable company, but analysts are concerned that its debt will exceed $1 billion.

SoftBank's share price has surged 70% this year on the backdrop of AI trends, becoming Japan's most valuable company. Analysts warn that investments in OpenAI and its $1 billion debt burden could pose liquidity risks.

June 4, 2569 at 09.47:XNUMX a.m., CNBC reported that The surge in SoftBank Group's share price made it Japan's most valuable company by market capitalization. This has sparked new questions among investors and analysts about whether Masayoshi Son's group is taking too much risk by making a huge gamble in the artificial intelligence (AI) industry.

SoftBank shares have risen approximately 70% since the beginning of the year, driven by increased confidence in AI, which has boosted the value of Arm Holdings and expectations that OpenAI may make a massive public offering in the near future.

This buying pressure resulted in SoftBank surpassing Toyota Motor Corporation to become Japan's most valuable company by market capitalization this week. This marks a significant turnaround for the company, which just years ago faced massive losses from its investment in WeWork, accumulating to more than $14,000 billion in damages.

However, analysts warn that current market sentiment may be overshadowing the increasing risks to companies' balance sheets.

Gil Luria, Head of Technology Research at Davidson Equity Capital Markets. said SoftBank has now become a leveraged bet in AI, presenting both the potential for massive returns and significant risk simultaneously.

SoftBank participated in OpenAI's funding round last year, when the company was valued at approximately $300,000 billion, and has continued to increase its investment. Last March, SoftBank secured a $40,000 billion bridge loan to further invest in OpenAI and for other business purposes.

As of the end of 2568, SoftBank will have approximately 16.3 trillion yen, or about $104,000 billion, of interest-bearing debt at the parent company level.

while S&P Global Evaluate that Following SoftBank's additional $30 billion investment in OpenAI, its investment in ChatGPT, the developer, will account for approximately 30,000% of SoftBank's total portfolio, similar to its stake in Arm Holdings.

S&P Global Ratings downgraded SoftBank's credit rating outlook to "negative" in March, citing potential weakening of the company's liquidity, asset quality, and financial capability due to its large investment in OpenAI.

Some analysts believe the risk lies not only in the level of debt, but also in SoftBank's increasingly dependent future on OpenAI.

Richard Windsor, founder of the research firm Radio Free Mobile. said If OpenAI fails to generate returns that meet market expectations, SoftBank could face liquidity problems quickly.

while Gil Luria Warning that If OpenAI fails to go public at its current valuation or higher, it could put significant pressure on SoftBank, given its substantial investment in OpenAI.

OpenAI currently has a market capitalization of approximately $852,000 billion, following its latest funding round of $122,000 billion in March.

Jay Ritter, Professor Emeritus of Warrington College of Business. said The current acquisition of SoftBank shares is similar to investing in OpenAI through debt financing.

"If OpenAI is successful, the debt will generate enormous returns. However, if OpenAI or other investments underperform, that debt could turn against SoftBank and cause damage." he said

Analysts also pointed out that SoftBank's portfolio still contains some assets that have underperformed expectations, such as Coupang and DiDi Global.

While the WeWork case remains a crucial lesson about the risks of investing heavily in just a few companies.

SoftBank, through its Vision Fund, injected billions of dollars into WeWork, once one of the world's most valuable startups, but which ultimately faced business model and governance issues before filing for bankruptcy in the United States in 2566.

However, some investors still believe that the risks to SoftBank are not yet at a worrying level. Richard Kay, fund manager at Comgest. said SoftBank's assets still far exceed its debt, and its loan-to-value ratio remains below 25%.

He believes that, despite OpenAI's disappointing results, it is unlikely to cause SoftBank a debt repayment problem, as the company has sufficient assets and equity holdings in other businesses to absorb the impact.

side Masayoshi Son continues to express full confidence in AI. He stated that the AI ​​revolution is 50 times larger than the dot-com era, and if AI stocks correct in the future, he would view it as a significant investment opportunity rather than a threat to businesses.

refer : www.cnbc.com

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