Leveraged beta, baby!
From the Wall Street Journal, April Fools Day, 2025:
Global tech investor SoftBank Group is turning to a familiar tool to fund its $40 billion investment in ChatGPT maker OpenAI announced late Monday: debt.
The Tokyo-based company, led by billionaire Masayoshi Son, said it expected its first $10 billion chunk of the deal would be financed by borrowing from Japanese bank Mizuho and other lenders and be completed in April. The remaining $30 billion would come by early 2026.
The deal, by far the largest-ever investment in a startup, values OpenAI at $300 billion if all the money is invested.
The bet
Together with SoftBank’s pledge to lead the $100 billion Stargate cloud-computing initiative with OpenAI, the investment marks a massive bet on the artificial-intelligence startup. It entwines the fortunes of SoftBank with a company that expects to lose billions of dollars for years to come.The hope is that OpenAI emerges as the leader of the pack in a race to spread artificial intelligence throughout society and commerce—a market that many believe could be worth trillions of dollars a year.
The information revolution “has now entered a new phase led by artificial intelligence,” SoftBank said in a statement that called OpenAI its “partner closest to achieving Artificial General Intelligence,” in which computers operate on the level of humans.
(News Corp, owner of The Wall Street Journal, has a content-licensing partnership with OpenAI.)
The risks
SoftBank is taking on a lot of risks for a piece of OpenAI.Ratings agency S&P Global said Tuesday that SoftBank’s “financial condition will likely deteriorate” as a result of the OpenAI investment and that its plans to add debt could lead the agency to consider downgrading SoftBank’s ratings.
None of the startups with early leads in generative AI have shown they can operate profitably, and the sector is pouring tens of billions of dollars into data centers based on assumptions, not yet proven, of a future in which AI rapidly permeates the globe.
Early tech leaders often falter—a point SoftBank learned when it made a dot-com era bet that Yahoo would be the dominant force in search.
The background...
....MUCH MORE
As we noted introducing last week's "OpenAI Close to Finalizing A $40 Billion SoftBank-Led Funding At A $300 Billion Valuation"
SoftBank's Mr. Son's entire history, going back to the dot.com bust is leveraged beta.
He was very fortunate that the British didn't allow Nvidia to buy ARM Holdings, thus clearing the way for his bid. Otherwise his claim to fame would be being the largest investor in WeWork....
And from November 2019:
SoftBank’s problems aren’t so surprising if you understand this one thing about the company
Throughout the manic phase of SoftBank and the Vision fund there was almost no mention of the fact that at the start of this century Masayoshi Son was the richest person in the word:
"But Son’s fairytale didn’t last long. After the dot-com bubble burst, his company Softbank’s shares plunged 75 percent in two months and was 93 percent lower by the end of 2000.We had a couple posts around the time of the above that touched on the craziness but not the past history:
The business almost went bankrupt and Son ended up losing USD 70 billion, the highest ever recorded financial loss for a person in history."
—MoneyControl, October 13, 2017
SoftBank In Talks To Acquire U.S. Treasury
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See also semi-variance, after the jump....****When the swings are as big as Son's are you need a bankroll that is gigantic. Even if you are right and have an edge, the natural variation can kill you and the last downturn will be the last downturn.
Some related links:....
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.
Bastard.
