SoftBank Group’s $5.8 billion sale of its stake in Nvidia rocked stock markets on Tuesday, fueling fears that the frenzy around artificial intelligence may have peaked, especially after recent warnings from Wall Street bank chiefs and a famous short seller.
In its quarterly results, the Japanese tech investor said it had sold all 32.1 million Nvidia shares it owned in October to fund CEO Masayoshi Son’s artificial intelligence push, based on his “all or nothing” bet on OpenAI, creator of ChatGPT.
SoftBank needs the funds for initiatives such as the $500 billion Stargate project to expand data center capacity in the US and up to $40 billion in funding promised to OpenAI, whose funding details were not disclosed with the announcements.
However, the timing of its sale deepened some doubts among investors about whether valuations in the AI industry might have gotten ahead of fundamentals.
Nvidia shares fell more than 2% in early trading, weighing on the benchmark S&P 500 index. Adding to the concern, CoreWeave, a provider of cloud services for AI, cut its revenue forecast due to a contract delay, sending its shares down 9%.
Echoes of an AI bubble grew louder in recent weeks after the CEOs of Morgan Stanley and Goldman Sachs warned that stocks could be about to crash, while hedge fund manager Michael Burry, known for his bets against the US housing market before the 2008 crash, bet against Nvidia and Palantir.
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Several analysts said the sale suggests that Son, one of the boldest investors in technology, sees the breakneck rally that made Nvidia the first $5 trillion company last month cooling after a more than 1,200% rise over the past three years.
But some pointed to SoftBank’s spotty record managing its Nvidia holdings. By some estimates, the company missed out on a rally of more than $100 billion in Nvidia shares by selling them in 2019 before the AI boom exploded, only to later buy back the chipmaker’s stock.
“In terms of timing, you can’t say that Masayoshi Son has been great with his trading of Nvidia stock,” said CJ Muse, senior managing director at Cantor Fitzgerald. “It just seems like an allocation of resources: finding funds to place bets elsewhere.”
Along with selling Nvidia shares, SoftBank sold about $9.2 billion in T-Mobile (TMUS.O) stock, giving Son a bigger pot of cash to assert its influence in an industry that needs capital and chips to finance the search for AI technology that can match or surpass human intelligence.
“By liquidating now, you are securing the capital needed to reinforce your conviction in AI applications and the superscale infrastructure behind them, OpenAI, Oracle and the Stargate project,” said Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors.
But the growing bet on OpenAI also ties SoftBank, which has suffered huge losses on its investments in the Vision Fund, more closely with the startup that is at the center of a series of circular deals that have raised concerns about the bubble.
The Japanese company’s shares, which have more than doubled this year, are increasingly being valued based on their exposure to OpenAI.
Shares rose last month following news of a restructuring of OpenAI that frees the startup from its nonprofit roots.
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The startup is considering a $1 billion public offering as early as next year, which could be a big windfall for investors like Microsoft and SoftBank, Reuters reported.
The rise in OpenAI’s valuation also boosted SoftBank’s second-quarter net profit, which more than doubled.
However, OpenAI has not given clear details on how it plans to fund its AI infrastructure deals, which total around $1.4 trillion.
It is expected to end the year with $20 billion in annual recurring revenue and recently rectified comments about the need for government-backed loans.
“The Vision Fund’s checkered past certainly lends an air of high-stakes poker to this divestment,” Schulman said.
With information from Reuters
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