Key Takeaways
- • SoftBank's 5-year credit default swap spread rose 17.4 basis points to 462 bps on Friday, the widest since October 2022 and a four-year high, according to Markit data.
- • SoftBank's $64.6 billion investment in OpenAI, its 90% stake in Arm, and SB Energy's data centre financing make it a bellwether for AI investment prospects.
- • SoftBank shares fell more than 11% on Friday and have roughly halved since the start of September.
- • SB Energy's planned IPO, filed in September at a potential $50 billion valuation, has reportedly been delayed until December or later, and the IPO filing projected revenue of about $439 billion while the company has no operational data centres.
- • Democratic gains in the US midterm elections have raised concerns about slower AI infrastructure buildout, with Futurum Group estimating one-third of US data centre capacity is at risk.
Summary
The cost of insuring against a default by SoftBank Group rose to its highest level in four years on Friday, as concerns over AI profitability weighed on global markets. According to Markit data, the five-year credit default swap spread on SoftBank widened by 17.4 basis points to 462 bps, its widest level since October 2022. Reuters reported that the move reflects growing investor scrutiny of the group's finances.
SoftBank is widely viewed as a bellwether for AI investment given its exposure across the sector. The company holds a $64.6 billion investment in frontier model developer OpenAI, a 90% stake in chip designer Arm, and finances data centre development through its subsidiary SB Energy. Investors have grown more cautious this year as SoftBank has taken on additional debt at record yields to fund its OpenAI stake, while the expected return on that investment has been pushed back after OpenAI delayed its public offering to 2027.
SB Energy filed for a public listing in September at a potential valuation of $50 billion, but media reports indicate the listing has been delayed until December or later. The IPO filing projected revenue of some $439 billion based on contracts with end-users. However, the company does not currently operate any data centres and is substantially dependent on OpenAI, a point that has heightened concern among credit investors.
The Democratic Party's sweeping wins in this week's US midterm elections have added to fears of a slowdown in AI infrastructure development. Rolf Bulk, head of semiconductors and infrastructure at the Futurum Group, wrote in a research report on Thursday that one-third of US data centre capacity is at risk because planned facilities sit in states whose governors may slow development. These concerns contributed to a rise in credit default spreads for firms that have borrowed to fund the buildout.
SoftBank's shares fell more than 11% on Friday and have declined by almost half since the start of September. Amir Anvarzadeh, a Japan equity market strategist at Asymmetric Advisors in Singapore, said there has been a steady decline in the credit standing of AI infrastructure firms and that equity markets are now pricing in a slowdown in data centre development. He added that he believes the market has hit bottom in the near term.
SoftBank is widely viewed as a bellwether for AI investment given its exposure across the sector. The company holds a $64.6 billion investment in frontier model developer OpenAI, a 90% stake in chip designer Arm, and finances data centre development through its subsidiary SB Energy. Investors have grown more cautious this year as SoftBank has taken on additional debt at record yields to fund its OpenAI stake, while the expected return on that investment has been pushed back after OpenAI delayed its public offering to 2027.
SB Energy filed for a public listing in September at a potential valuation of $50 billion, but media reports indicate the listing has been delayed until December or later. The IPO filing projected revenue of some $439 billion based on contracts with end-users. However, the company does not currently operate any data centres and is substantially dependent on OpenAI, a point that has heightened concern among credit investors.
The Democratic Party's sweeping wins in this week's US midterm elections have added to fears of a slowdown in AI infrastructure development. Rolf Bulk, head of semiconductors and infrastructure at the Futurum Group, wrote in a research report on Thursday that one-third of US data centre capacity is at risk because planned facilities sit in states whose governors may slow development. These concerns contributed to a rise in credit default spreads for firms that have borrowed to fund the buildout.
SoftBank's shares fell more than 11% on Friday and have declined by almost half since the start of September. Amir Anvarzadeh, a Japan equity market strategist at Asymmetric Advisors in Singapore, said there has been a steady decline in the credit standing of AI infrastructure firms and that equity markets are now pricing in a slowdown in data centre development. He added that he believes the market has hit bottom in the near term.
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