"SoftBank stock broke before the market during the dot-com bust, and Citi warns that might be the case this time as well"
Just something to be aware of, not immediately actionable.
From MarketWatch, November 21:
As AI angst hits markets, this stock — not Nvidia — is the canary in the coal mine
It’s
usually difficult to pinpoint a specific factor that’s caused a stock
market sell-off. The current bout of investor angst is no different: a
less dovish Federal Reserve, concerns about private credit and wariness
about rich valuations, have all been cited as catalysts.
But
given that it’s chunky falls for Big Tech stocks that’s doing most
damage to equity benchmarks, perhaps much of the blame lies with a
cooling of AI fervor.
And
a team of strategists at Citigroup, led by Dirk Willer, say the source
of that negative narrative is OpenAI, the creator of ChatGPT, that has
been central to much of the circular investment in the AI ecosystem.
They
ask how a company with revenue they estimate at $12.5 billion — or that
OpenAI chief Sam Altman more optimistically puts at $20 billion — can
support orders of $1.4 trillion.
OpenAI
aims to become profitable only in 2029 or 2030, and until then may burn
over $115 billion in cash, according to some estimates. And Citi
observes that meanwhile worries are rising that competition in large
language models — the latest Google model was released just this week
—may cause OpenAI to lose market share.
While OpenAI is private, there is a proxy — Japanese investment firm SoftBank Group which has an 11% stake in the ChatGPT owner.
The
Citi team does some math to get the value of OpenAI out of the SoftBank
price — they take the enterprise value of SoftBank and strip out the
current values of all its publicly held equities, which is mostly ARM.
Citi then takes the historical quarterly snapshots of equity holdings
from SoftBank to derive the split between the other private investments
and SoftBank Vision Fund 2 (SVF2), as shown in the chart below.
Source: Citigroup -
This
gives an estimated value to SoftBank’s OpenAI stake of $62.4 billion.
In early October SoftBank implied that its 11% stake was worth about $55
billion, valuing OpenAI at around $500 billion.
Citi
accepts that its calculations provide “a very rough proxy for OpenAI”
because SVF2 also includes other private companies, and it also does not
take any holding company discount into consideration. Nevertheless,
they reckon that “the OpenAI stake is at this stage dominating the other
private investments in the eyes of the market.”....
Having observed Mr. Son and his position in the parade—from Drum
Majorette leading the way, to being the guy cleaning up after the
elephants, and then back to the front— we had this introduction in
February 2024:
Since the time he almost went broke after the dot.bomb bubble burst
(he had briefly been the richest person in the world) I've come to
realize this guy isn't some great visionary/grand strategist; he's just
leveraged beta. Making big bets, all geared up, on whatever is at the
head of the passing parade.
That said, he owns 90% of ARM Holdings and I don't.
