SoftBank Group, once known for its bold and extravagant investments in startups at peak valuations, is now shifting gears to embrace a more cautious approach in its quest for the next big breakthrough in artificial intelligence (AI). Founder Masayoshi Son's tech powerhouse is pivoting towards prudence, marking a significant departure from its previous strategy of high-conviction bets on startups at an unprecedented scale.
The shift in strategy reflects the enduring impact of SoftBank's defensive stance, adopted in response to plummeting valuations during the pandemic-induced market turbulence, exacerbated by diminishing investor appetite for risk amid rising interest rates.
Navneet Govil, Chief Financial Officer of SoftBank's investment arm, the Vision Fund, emphasized the company's newfound prudence in evaluating investment opportunities. He underscored that SoftBank is approaching investments as financial investors rather than strategic investors, a notable departure from its previous approach.
In 2023, the Vision Fund unit made only 29 new and follow-on investments out of over 300 companies it assessed, marking a stark reduction in investment activity. The October-to-December quarter witnessed the unit's most conservative investment activity since 2017, with SoftBank reporting a significant decline in new investments compared to the peak investment spree of 2021.
Mitsunobu Tsuruo, an equity analyst at Citi covering SoftBank, commended the company's cautious approach, particularly in light of the challenges it faced in recent years. Tsuruo highlighted SoftBank's stringent selection criteria for investees, emphasizing the importance of choosing transformative companies with strong potential for AI innovation and scalability.
SoftBank's recent financial report revealed its first profit in five quarters, accompanied by a substantial $4 billion investment gain at the Vision Fund business. With a burgeoning war chest totaling 4.4 trillion yen ($29 billion) in cash, cash equivalents, and liquid bonds, SoftBank is well-positioned to navigate the evolving landscape of AI investments.
Even before the successful listing of chip design firm Arm in New York last year, SoftBank had shifted its focus exclusively to investing in AI. Arm's soaring share price underscores the increasing demand for its technology in designing AI-powered chips, positioning it as a pivotal asset within SoftBank's portfolio.
Yoshimitsu Goto, SoftBank's CFO, emphasized Arm's indispensable role in the AI ecosystem, highlighting its significance as "the core of the core" among SoftBank's group of companies.
Despite SoftBank's ambitious AI investment strategy, the company faces challenges in identifying winning ventures in the competitive AI market. Valuations of many AI-related companies in SoftBank's portfolio have stagnated, reflecting the broader challenges of identifying successful players in the AI space.
Amir Anvarzadeh of Asymmetric Advisors noted the soaring valuations of companies like chip maker Nvidia, signaling intense competition in the AI market and posing challenges for SoftBank's investment criteria.
While SoftBank's track record in the AI market is mixed, CEO Masayoshi Son's past successes, including investments in Alibaba, Arm, and mobile internet technology, underscore the company's potential for further AI gains. Analysts suggest that SoftBank may pursue large, controlling stake investments in promising AI ventures, necessitating careful allocation of resources to capitalize on future opportunities in the AI landscape.
