SoftBank's stock price hits a 24-year high! Benefiting from the AI boom and Arm investment

On Thursday, July 4th, Eastern Time, SoftBank's stock price closed at 11,190.00 Japanese Yen, hitting a historical high, surpassing the intraday high of 11,000 Japanese Yen set on February 15, 2000.

Analysis indicates that following the dot-com bubble in 2000 and the tech stock crash in 2021-2022, SoftBank's successful bets on the AI industry and Arm Holdings have driven a strong recovery in its stock price.

UBS Bets on Success of AI and Arm Holdings

The development of SoftBank Group can be traced back to 1981 when it was founded by Masayoshi Son, primarily engaged in software distribution. In 1994, SoftBank successfully went public in Japan. During the subsequent boom of the internet era, SoftBank made a $2 million investment in Yahoo in the mid-1990s, marking the beginning of its tech investment journey.

With the rapid growth of the internet, SoftBank's stock price reached a historical closing high of 10,111.1 Japanese Yen on February 18, 2000. Three days prior, it had set an intraday record of 11,000 Japanese Yen.

Following the burst of the dot-com bubble, SoftBank's stock price also suffered a significant decline, dropping by over 90% from the peak of the internet bubble.

In 2017, Masayoshi Son launched the massive tech investment fund, Vision Fund, leading to an upward trend in SoftBank's stock price, albeit with significant fluctuations. The Vision Fund made numerous successful investments in tech companies globally, while some fell short of expectations. For instance, office-sharing company WeWork, in which SoftBank led a financing round in 2019 valuing it at $47 billion, ultimately failed to go public successfully and filed for bankruptcy.

After nearly 21 years of waiting, SoftBank finally broke its historical closing high record on February 16, 2021.

However, following the global tech stock crash, the stock price experienced a sharp pullback, and SoftBank was not spared. In 2022, the Vision Fund reported its highest historical loss at the time. Subsequently, Masayoshi Son announced that SoftBank would adopt a more conservative investment strategy, entering a "defense" mode.

Nevertheless, after recording a massive loss of $32 billion in 2023, Masayoshi Son swiftly adjusted the strategy, announcing a shift to "offense" and doubling down on investments in the AI field. Starting from May 2023, with the broad recovery of tech stocks, SoftBank's stock price began to rise, and the financial situation of the Vision Fund also improved.

Oliver Matthew, Head of Asian Consumer Research at CLSA, stated in an email to the media:

"Due to the decline in equity values and the tightening of the private financing environment, SoftBank Vision Fund had to impair several investments. It appears that the impairment cycle has largely ended, and the future IPO market may be more favorable for AI-related investments." In 2023, SoftBank's stock price has risen by about 78%. Analysts believe that this is mainly attributed to the successful initial public offering (IPO) of Arm and Masayoshi Son's successful bet on the AI field.

Paul Golding, an analyst at Macquarie's US stock research department, stated that SoftBank has been investing in and developing a portfolio of AI ecosystems for a long time, and this vision may be part of the reason SoftBank acquired Arm in 2016. Golding believes that SoftBank started investing in AI ecosystems long before the AI boom and gained a key position and intellectual property in the semiconductor market through the acquisition of Arm.

Golding added that SoftBank's stock price has benefited from the application of Arm's technology in multiple industries, such as the automotive industry or cloud data centers. These applications have attracted more attention and recognition to SoftBank's investments.

Is SoftBank's Stock Price Overvalued?

Over the years, SoftBank has demonstrated its far-reaching layout in the technology field through a series of strategic investments, especially its controlling stake in Arm. This has also raised investors' concerns about whether SoftBank's market value truly reflects the value of its held assets.

For example, SoftBank's market value is approximately $101.5 billion, while it holds 90% of Arm. As of July 3rd, Arm's stock price has risen by nearly 124% this year, with a market value of approximately $176 billion. Based on Arm's market value of around $176 billion, the value of SoftBank's stake is about $158 billion, far exceeding SoftBank Group's total market value. This does not include SoftBank's other assets and business segments, such as its telecommunications business.

Dan Baker, a senior stock analyst at Morningstar, pointed out that most of the increase in SoftBank's stock price actually comes from Arm's performance.

He stated in an email to the media that although this year's stock price increase is mainly due to the rise in Arm's stock price and the depreciation of the yen, he is not sure if investors are truly convinced by SoftBank's overall story. Baker suggested using the sum-of-the-parts (SOTP) valuation method to assess the various parts of the SoftBank Group to determine the company's true value. According to him, this year's SOTP valuation is still slightly below 50%, indicating that SoftBank's stock price does not truly reflect the value of its various businesses and investments.

Baker concluded, "I am not sure if investors are 'buying SoftBank's story,' but clearly they are buying into Arm's story."

In addition, SoftBank may also benefit from the recent overall rise in the Japanese stock market. As of Thursday, the Nikkei 225 index has risen by 22% this year.

Analyst Matthew from Lyon Securities pointed out that due to SoftBank's early investments in the field of artificial intelligence, SoftBank's valuation discount is expected to decrease in the future. Matthew stated:

"SoftBank has always firmly followed its investment direction and is one of the early investors in the AI theme. But to some extent, they invested too early, to the point where many investors think they bid too high or invested in companies with unclear AI relationships." Therefore, SoftBank Group's stock price has shown a surprisingly large discount compared to its fair value, but as AI technology matures and its application becomes more widespread, we believe that this discount will narrow in the future."