Is SoftBank's Masayoshi Son going to "add fuel to the fire" for AI by spending $50 billion in the next few years?

ARM is about to go public, and Masayoshi Son's "offensive" strategy for SoftBank is in full swing.

As of the end of June, SoftBank had approximately $35 billion in cash. Some analysts believe that if Masayoshi Son takes advantage of the ARM IPO to borrow from banks using stocks as collateral, he could raise over $20 billion in funds.

This means that SoftBank's cash will exceed $55 billion, enough to support its ambitious investments in the coming years.

Last year, Masayoshi Son announced at a press conference that SoftBank would enter a "defensive mode," which included cost reduction, efficiency improvement, and a nearly complete halt to investments. He also handed over daily control of SoftBank to the more conservative CFO, Yoshimitsu Goto.

However, in June of this year, after disappearing from the public eye for seven months, Masayoshi Son returned to the forefront and delivered a speech titled "Initiating a Reversal Offensive," announcing in a high-profile manner that SoftBank is entering an "offensive mode." He will leverage ARM's advantages in the field of artificial intelligence to make a comeback and eventually "dominate the world." Throughout the speech, concepts such as AI and ChatGPT were prominently featured.

At the time, Masayoshi Son stated that AI is his current top concern, and he uses ChatGPT every day to engage in dialogue and debate through questioning, which he finds "very exciting."

In fact, Masayoshi Son began advocating for the revolutionary nature of AI several years ago, but despite his lofty promises, he ultimately fell short in the AI field.

In 2018, Masayoshi Son told investors:

"We are not blindly investing; we are focused on one theme, which is artificial intelligence."

In 2020, he boasted that the unprecedented investment frenzy would make SoftBank an "investment company for the AI revolution."

From 2017 to mid-2022, Masayoshi Son mentioned "AI" over 500 times in quarterly and annual performance reports. He once stated that AI will "redefine all industries" and lead a powerful new wave of information revolution. SoftBank will seek top entrepreneurial companies in this field and establish a so-called "First AI Strategy Cluster."

However, after investing over $140 billion in more than 400 startup companies, SoftBank is clearly struggling to keep up with the current AI investment frenzy.

The latest data from venture capital database PitchBook shows that among the 26 generative AI startup companies valued at over $1 billion, SoftBank has only invested in one. In comparison, SoftBank's rivals such as Coatue, Lightspeed, and Tiger Global Fund have invested in multiple unicorn companies in this field.

The most embarrassing part is that in 2017, SoftBank purchased $3 billion worth of shares in AI leader NVIDIA. If SoftBank had chosen to continue holding the shares instead of selling them for short-term profit, the value of those shares would now be $50 billion—possibly higher than the entire market value of ARM at the time of its IPO. After a painful lesson, SoftBank can only start over in the field of AI by investing a large amount of money in startups.

In the first half of this year, SoftBank has sold a series of assets to strengthen its balance sheet, including most of its shares in Alibaba.

Analysts pointed out that the upcoming IPO of ARM will become SoftBank's new source of funds after Alibaba.

David Gibson, an analyst at MST Financial, believes:

"In the next 6 to 12 months, SoftBank may start its crazy spending for the next few years with reserves of over $50 billion, which is a scene we have never seen since the first Vision Fund."

Some investors believe that Masayoshi Son has been preparing for a transformative large-scale acquisition since last year, especially in the field of AI, in order to regain a foothold in the technology industry. The IPO of ARM is a critical moment for SoftBank, and the value of SoftBank's investment portfolio is gradually shrinking due to the general downturn in the technology industry.

Kirk Boodry, a SoftBank analyst at Tokyo-based Astris Advisory, estimates that if ARM is valued at $50 billion to $60 billion at the time of IPO, SoftBank will sell 10% of its shares, and the proceeds from this transaction will reach approximately $6 billion.

He predicts that SoftBank can use its remaining shares in ARM as collateral to borrow $25 billion. This is three times the amount of funding that can be obtained by mortgaging ARM shares now. Because once ARM is recognized in the capital market, banks will be more willing to lend.

Wall Street News previously mentioned that SoftBank has bet everything on this IPO. In order to please Middle Eastern LPs such as Saudi Arabia and the United Arab Emirates, Masayoshi Son bought 25% of ARM shares from the Vision Fund for $6.4 billion this month, which means that if the market value of ARM does not reach this number at the time of IPO, the loss will be borne by Masayoshi Son.

Most analysts on Wall Street believe that the valuation of $64 billion may be too high in the current IPO winter, and the actual proceeds of the ARM IPO may not meet SoftBank's expectations. This also means that Masayoshi Son may not be able to obtain more than $20 billion in financing as expected.