SoftBank posts $7 billion quarterly loss on US data center hit and financing costs

The Japanese investment giant reported a net loss of 1.1 trillion yen in the second quarter, far exceeding analysts’ forecasts.

SoftBank Group, the Japanese company making huge bets on artificial intelligence, said on Tuesday it posted a net loss of $7 billion (1.1 trillion yen) in the second quarter. It attributed the loss to heavy construction spending on data centers in the US and rising financing costs. The loss far exceeded analysts’ forecasts. A year earlier, the company had booked a profit of 2.5 trillion yen thanks to the rising value of its stake in OpenAI.

Equipment losses

After a change of plans, SoftBank booked a $3.7 billion loss on prepayments for equipment at US data center projects, including a large-scale development in Pike County, Ohio. The company also said it is entitled to discounts of up to $2.1 billion on future purchases, which could offset part of the loss.

Chief Financial Officer Yoshimitsu Goto told a press briefing in Tokyo that fierce competition to secure power supply and power generation equipment for data centers led the company to buy before long-term specifications were finalized. Chief Accounting Officer Kazuko Kimiwada added that these payments cannot be recovered if orders are canceled and fees are incurred.

“There are many cases where you have to change your strategy for something you thought would be good a year or two ago,” Goto said. He added that, since the company is still proceeding partly by trial and error, how to value assets it no longer needs could become a topic of discussion in the future.

Record fundraising

The group raised $56.5 billion during the period, its highest quarterly amount ever, as founder Masayoshi Son continues his aggressive investment in AI. The funds went toward data centers, robotics, and the purchase of a 13% stake in ChatGPT maker OpenAI for $64.6 billion.

Debt burden raises concern

SoftBank’s heavy borrowing, despite sometimes eye-catching returns, is a source of concern for some investors. Financing costs reached 462 billion yen in the quarter, more than doubling in the July–September period. The company aims to outpace its interest payments on debt through the rising value of its assets.

Borrowing during the period included an $11.87 billion term loan, $10 billion in corporate bonds, and 1 trillion yen in corporate bonds. SoftBank also increased its margin loan against its stake in Arm by $5 billion, to about $25 billion.

Goto declined to give details on OpenAI’s latest funding round, which people familiar with the matter say values the company at $1.25 trillion. He said, however, that an announcement in the third quarter is highly likely.

Other investments

SoftBank’s stake in ByteDance, the owner of TikTok, generated a $1.3 billion investment gain in the quarter. However, share prices of major publicly listed portfolio companies, including Coupang and Grab, fell.

Turmoil in the AI sector

The results will raise further questions about how SoftBank will cope with the difficulties currently engulfing the AI sector. The Democratic Party’s big win in last week’s US midterm elections raised expectations of regulatory scrutiny and heightened investor concerns about the industry’s profitability.

SoftBank shares rose 14% on Tuesday ahead of the results, but have roughly halved in value since early June. This week, news that the FBI is investigating Nvidia CEO Jensen Huang further shook the sector. The probe relates to his relationship with a Chinese businessman alleged to be a Beijing spy. SoftBank was previously a major investor in Nvidia but no longer holds a stake in the company.

Nvidia has committed to investing $3 billion in SB Energy, SoftBank’s data center development subsidiary, which aims to go public.

Exchange rate: $1 = 157.97 yen.