OpenAI And Arm Will Drive Digital Trends Amid Risks

Key Takeaways

• Dual strengths in Arm and AI partnerships are set to position SoftBank as a pivotal player in the global AI ecosystem with significant value creation potential.
  
• Exposure to high-growth assets, disciplined capital strategy, and emerging market digitization is expected to repeatedly boost earnings, portfolio value, and shareholder returns.
  
• Heavy reliance on volatile tech investments, persistent governance concerns, and high leverage expose the company to significant risks in challenging market and credit conditions.

Catalysts

Provides telecommunication services in Japan and internationally.

• Analysts broadly agree that SoftBank's AI focus, especially its partnership with OpenAI and vast investment in AI infrastructure, will drive strong future growth; however, this significantly understates the compounding effect of having both Arm and OpenAI as dual engines, with SoftBank positioned to be the backbone of the global AI ecosystem, suggesting outsized long-term upside for earnings and NAV as AI-driven value creation accelerates and network effects take hold.
  
• While analyst consensus anticipates major gains from portfolio company IPOs and Vision Fund revaluations, it likely underestimates both the velocity and magnitude of value unlocks-SoftBank's embedded optionality in high-growth, late-stage assets (such as PayPay, Klarna, OpenAI, Meesho and ByteDance) as well as recurring investment gains from fintech and AI automation will catalyze repeated NAV reratings and drive step-changes in net income.
  
• The accelerating digital transformation of emerging markets combined with SoftBank's exposure to local champions in fintech, e-commerce and mobile platforms (e.g., PayPay, Meesho, Lenskart, Coupang) positions the company to capture explosive revenue and portfolio appreciation as developing economies rapidly digitize over the next decade.
  
• Arm's surging share in global cloud, AI and hyperscale server chips-alongside its deepening moat from R&D investments-will not only drive robust recurring royalty revenue, but also provide SoftBank with a critical, high-margin anchor as compute demand and device footprints multiply exponentially in the AI and IoT eras.
  
• SoftBank's disciplined asset monetization strategy, exceptionally strong balance sheet, and demonstrated ability to recycle capital at scale create an outsized capacity for opportunistic buybacks or game-changing new investments, accelerating NAV per share growth and enabling rapid compounding of shareholder value as market confidence in the model returns.

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 8.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 23.5% today to 11.4% in 3 years time.
• The bullish analysts expect earnings to reach ¥1053.4 billion (and earnings per share of ¥740.99) by about September 2028, down from ¥1731.4 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 29.6x on those 2028 earnings, up from 13.4x today. This future PE is greater than the current PE for the JP Wireless Telecom industry at 21.5x.
• Analysts expect the number of shares outstanding to decline by 1.56% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.76%, as per the Simply Wall St company report.

SoftBank Group Future Earnings Per Share Growth

Risks

• Large portions of SoftBank's value are tied up in high-growth technology and AI investments that remain highly sensitive to rising global interest rates and tighter credit markets, which could lower startup funding, reduce exit valuations, and negatively impact investment returns and net asset value.
  
• The persistent NAV discount, highlighted as hovering around 40 percent, reflects ongoing market skepticism regarding transparency, corporate governance and the reliability of reported valuations, all of which can keep the share price suppressed relative to underlying assets and constrain the company's ability to realize shareholder value.
  
• The company continues to face challenges with profitable exits from its Vision Fund portfolio, especially in Vision Fund 2, which still has a significant gap between its investment cost and its reported fair value, indicating a risk of chronic write-downs and downward pressure on reported earnings.
  
• SoftBank's increased capital commitments, large-scale project requirements such as the Stargate data centers, and growing loan-to-value ratio heighten exposure to high leverage and refinancing risks, potentially compressing net margins and reducing available cash for future investments if credit conditions tighten.
  
• The corporation's domestic telecom arm operates amid saturated Japanese mobile markets and intensifying competition from newer entrants like Rakuten Mobile, which, coupled with required infrastructure investments for 5G and 6G and rising regulatory costs, is likely to squeeze revenue growth and overall group profitability.

Valuation

• The assumed bullish price target for SoftBank Group is ¥20000.0, 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 ¥20000.0, and the most bearish reporting a price target of just ¥9400.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be ¥9281.1 billion, earnings will come to ¥1053.4 billion, and it would be trading on a PE ratio of 29.6x, assuming you use a discount rate of 4.8%.
• Given the current share price of ¥16280.0, the bullish analyst price target of ¥20000.0 is 18.6% 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.