SoftBank Swings to a $7 Billion Quarterly Loss

TOKYO, Nov. 10 — SoftBankSoftBank Group lost ¥1,115.3 billion, about $7.0 billion, in the three months to Sept. 30, after a ¥597.2 billion ($3.7 billion) loss on power-generation equipment it had ordered in advance for American AI data centers. Analysts on average had expected a profit of ¥129 billion, Bloomberg News reported; a poll of analysts by Visible Alpha had expected a profit of ¥53.5 billion, The Wall Street Journal reported.

It carried its stake in OpenAI at $99.6 billion, on $54.6 billion invested, and said the valuation was unchanged. The results came out at 3:30 p.m. in Tokyo, 1:30 a.m. in New York, the same minute SoftBank’s shares closed up 13.88 percent.

It is SoftBank’s first net loss in almost two years, Bloomberg reported, for a company “increasingly seen as a proxy for sentiment toward OpenAI and the broader AI sector.” For the six months to Sept. 30, the loss attributable to its owners was ¥768.0 billion, against a profit of ¥2,924.1 billion a year earlier.The Quarter and the HalfSoftBank reports the six months; the quarter comes from its presentation. A profit of ¥347.3 billion in April–June, less the July–September loss of ¥1,115.3 billion, leaves the half’s loss of ¥768.0 billion.

The Equipment

The equipment was bought by Silver Bands 7, which the report calls “a subsidiary in which the Company and SVF2 have invested”; SVF2 is SoftBank’s second Vision Fund. It reserved factory capacity and signed purchase contracts for “power generation-related equipment” for American AI data centers, “including the PORTS-Pike Technology Campus in Pike County, Ohio,” paying ¥1,500,886 million ($9.48 billion) through Sept. 30, the report says.PORTS-PikeSoftBank’s presentation still lists a 20-year lease, signed Aug. 17, with OpenAI for the Ohio campus’s full 8.0 gigawatts of IT capacity.

Then, the report says, “SB7 revised its equipment procurement strategy given the evolving requirements of its existing and planned projects.” The ¥597,248 million ($3.73 billion) loss is made of ¥457,030 million of “non-refundable advance payments made to secure manufacturing capacity and purchase equipment” and ¥140,218 million for “contract modifications and settlements.” In return SB7 “became entitled to receive rebates of up to $2.1 billion over the next 10 years on future equipment purchases, subject to certain conditions,” which SoftBank has not booked as an asset. The report does not name the suppliers.

“We made bridge investments in advance to secure power generation equipment in anticipation of shortage,” a SoftBank executive said on the earnings call, CNBC reported. The presentation puts the advance payments still on the books at $6.6 billion, and says SoftBank expects “to recoup the investment through project financing.”

We made bridge investments in advance to secure power generation equipment in anticipation of shortage.

Other AI companies have been buying. Anthropic bought commitments for 1.7 gigawatts of heavy-duty generators in late September, in a deal worth about $3.4 billion, the Financial Times reported on Sunday, citing one person familiar with the matter.

The Stake

This paper asked on Nov. 8 what the OpenAI stake was worth. The answer is $99.6 billion on Sept. 30, for a cumulative gain of $45.0 billion, the same gain as on June 30. “The valuation was unchanged from the previous fiscal year-end,” the report says: the stake’s fair value rose by exactly the $10 billion SoftBank paid in during the quarter. A further $10 billion on Oct. 1 took its investment to $64.6 billion, for about 13 percent.

SoftBank said a potential increase in OpenAI’s valuation after its new funding round had not yet been reflected in its results, pending an official announcement, and could be in the fiscal third quarter, to Dec. 31, CNBC reported. OpenAI raised about $11 billion at a $1.25 trillion valuation, after initially seeking $30 billion at a $1.4 trillion value, Bloomberg News reported.

Two derivative losses, booked over the six months, added to the bill. In August SoftBank raised $7.35 billion through prepaid forward contracts backed by all its Intel shares, and recorded a ¥321,891 million loss on them “as Intel’s share price increased,” against a ¥1,062.8 billion investment gain on the Intel shares themselves over the half. It recorded ¥203,802 million more on warrants that Energy Global granted OpenAI “as incentives under lessor lease arrangements related to data centers,” as their fair value rose.Energy GlobalEnergy Global, LP is reported in the “Other” line of SoftBank’s segment accounts. The warrants convert into its ordinary equity interests.

The Test

SoftBank put its net asset value at ¥59.8 trillion on Sept. 30, down from ¥72.3 trillion on June 30, and its adjusted loan-to-value ratio for the holding company at 15.9 percent, against a policy of staying below 25 percent in normal circumstances. A pro forma figure in its presentation was ¥44.7 trillion, using Nov. 9 exchange rates and share prices for Arm, SoftBank Corp. and Intel; other listed shares kept their Sept. 30 prices. Its shares, Bloomberg reported, “have plunged more than 50% from their record high in June,” on fears over the debt it has taken on for AI and concerns that the Democrats’ midterm sweep could stall many of the projects of Masayoshi Son, its founder.

Tuesday’s rise, to ¥3,872 from ¥3,400, came as Asian technology shares followed Wall Street’s Monday rebound, CNBC reported. Wednesday’s regular session in Tokyo, which opens at 9 a.m., 7 p.m. Tuesday in New York, will be the first full session on the Tokyo Stock Exchange since the results.

Daily Cortex is written with AI models, including Anthropic’s Claude, and fact-checked with OpenAI’s GPT models.