OpenAI And Ampere Will Drive Digital Transformation Despite Risks

Key Takeaways

• Accelerated AI and robotics strategies position SoftBank to capture outsized market share and revenue growth across global infrastructure, enterprise, and edge segments.
  
• Strategic partnerships, portfolio revaluations, and expanded digital finance offerings drive higher earnings potential and unlock new high-margin business channels.
  
• Increasing concentration in volatile tech assets, rising debt, and global risks threaten SoftBank's earnings stability, portfolio resilience, and long-term growth prospects.

Catalysts

Provides telecommunication services in Japan and internationally.

• Whereas analyst consensus sees the AI revolution and initiatives like Stargate delivering significant long-term revenue uplift, the accelerating pace of generative AI adoption and OpenAI's dominant 80 percent market share could allow SoftBank to capture far greater compounded growth, thus driving a steeper increase in both top-line and NAV than currently expected.
  
• Analyst consensus expects Arm's expansion in AI chip design to raise future earnings, but recent acquisitions like Ampere and Graphcore, plus SoftBank's unmatched pool of 8,400 semiconductor engineers, position it to capture a disproportionately large share of the infrastructure and edge AI markets globally, supporting sharply higher royalty streams and operating margins.
  
• SoftBank's newly ramped-up focus on enterprise AI solutions with Cristal intelligence, in partnership with OpenAI, could catalyze rapid digital transformation among Japanese and Asian corporates, generating outsized growth in software and services revenue channels beyond consensus estimates.
  
• The planned public offering of PayPay, now one of Japan's largest fintech and digital banks, combined with surging digital financial services adoption in Asia, can deliver a sizable revaluation of SoftBank's portfolio and sustainably boost consolidated earnings and cash flow.
  
• Recent moves to centralize and aggressively scale robotics investments via Robo Holdings enable SoftBank to dominate the fast-growing AI-robotics intersection, opening up new high-margin revenue streams and the possibility of a robotics portfolio on par in market value with Vision Fund's tech holdings within several years.

SoftBank Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on SoftBank Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming SoftBank Group's revenue will grow by 8.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 15.7% today to 10.2% in 3 years time.
• The bullish analysts expect earnings to reach ¥937.0 billion (and earnings per share of ¥653.33) by about July 2028, down from ¥1134.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 23.4x on those 2028 earnings, up from 14.8x today. This future PE is greater than the current PE for the JP Wireless Telecom industry at 19.9x.
• Analysts expect the number of shares outstanding to decline by 1.94% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.97%, as per the Simply Wall St company report.

SoftBank Group Future Earnings Per Share Growth

Risks

• The company is heavily increasing its exposure to mega-scale AI investments such as the up to 30 billion dollar commitment to OpenAI and the 6.5 billion dollar acquisition of Ampere, but there is significant risk that rising global interest rates and tightening venture capital funding will depress valuations and make exits more difficult, which could negatively impact future net asset value and net income.
  
• SoftBank's business model remains highly dependent on a small number of concentrated, volatile tech holdings like Arm and anticipated IPOs such as PayPay, meaning that softness or disappointment in these assets could create outsized swings in earnings and compress revenue growth.
  
• The company's loan-to-value ratio has risen sharply from approximately 8.4 percent to 18 percent within a year and is expected to increase further due to major acquisitions and investments, raising the risk of increased debt servicing costs that could erode net margins and reduce the ability to reinvest for future growth.
  
• Geopolitical risks, including escalating US-China tensions and ongoing de-globalization, may restrict SoftBank's cross-border deal flow and international diversification, leading to a limited pipeline of high-growth investments, reduced portfolio resilience, and vulnerability in earnings if certain regions or sectors face downturns.
  
• The core telecom business faces mature, saturated markets and ongoing regulatory pressures around pricing, fair competition, and data privacy, so stagnation and rising compliance or capex requirements for technologies like 5G may compress cash flows and limit revenue contribution from the wireless segment over the long term.

Valuation

• The assumed bullish price target for SoftBank Group is ¥14120.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of SoftBank Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥14120.0, and the most bearish reporting a price target of just ¥7780.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be ¥9167.5 billion, earnings will come to ¥937.0 billion, and it would be trading on a PE ratio of 23.4x, assuming you use a discount rate of 5.0%.
• Given the current share price of ¥11825.0, the bullish analyst price target of ¥14120.0 is 16.3% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.