OpenAI And ARM Exposures Will Exacerbate Capital Pressures

Key Takeaways

• Heavy concentration in a few tech investments and ongoing market risks heighten volatility in earnings and asset values.
  
• Execution, regulatory, and funding challenges threaten SoftBank's ability to consistently monetize and realize value from its ambitious portfolio.
  
• Geopolitical risks, concentrated holdings, and aggressive capital deployment into AI expose SoftBank to heightened financial, execution, and earnings volatility.

Catalysts

Provides telecommunication services in Japan and internationally.

• While SoftBank's investments position it to benefit from rapid progress in AI, automation, and data-driven business models-especially via Arm, OpenAI, and the Stargate data center project-these initiatives expose it to significant execution, capital intensity, and technological risk, which could lead to inconsistent future revenue and earnings growth if major projects underperform or are delayed.
  
• Despite momentum in portfolio companies aligned with digital transformation and cloud infrastructure, SoftBank's ability to monetize these assets through IPOs or exits remains highly contingent on favorable liquidity conditions and regulatory approvals; if higher global interest rates or regulatory hurdles persist, net asset value growth and realized gains could stagnate or reverse.
  
• Although recent results show a recovery in net income and investment gains, there remains an over-reliance on a handful of large, concentrated holdings such as ARM and prospective OpenAI investments, raising the risk of heightened earnings volatility and potential value impairment if a single key asset suffers operational or valuation setbacks.
  
• While the maturation of SoftBank's Vision Fund portfolio could unlock upside through late-stage company IPOs and improved earnings stability, there is still a real risk of diminishing returns from earlier investments, write-downs on underperforming assets, and ongoing difficulties in achieving consistently strong exits, which could weigh on net margins and capital returns over time.
  
• Despite the group's greater focus on capital discipline, balance sheet health, and strategic deleveraging, SoftBank's aggressive investment pace-in highly competitive and rapidly changing sectors-could continue to drive persistently high operating expenses and debt-service costs. This would place sustained pressure on cash flow and net margins, especially if market or funding conditions deteriorate.

SoftBank Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on SoftBank Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming SoftBank Group's revenue will grow by 3.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 15.7% today to 2.0% in 3 years time.
• The bearish analysts expect earnings to reach ¥160.0 billion (and earnings per share of ¥114.0) by about June 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 bearish analyst cohort, the company would need to trade at a PE ratio of 77.6x on those 2028 earnings, up from 9.3x today. This future PE is greater than the current PE for the JP Wireless Telecom industry at 20.2x.
• 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 5.81%, as per the Simply Wall St company report.

SoftBank Group Future Earnings Per Share Growth

Risks

• Rising geopolitical tension and deglobalization, especially continued or escalating US-China frictions, could severely limit SoftBank's ability to invest, achieve exits, or realize value from key portfolio companies in China and emerging markets, resulting in reduced investment gains and lower net income over the long term.
  
• Ongoing volatility and underperformance in technology stocks, as evidenced by a ¥2.1 trillion year-over-year decline in net asset value and recent challenges in India and among Vision Fund 2 holdings, may pressure SoftBank's asset values and depress revenue and realized gains if secular tech headwinds persist.
  
• Persistent over-reliance on a small number of major holdings such as Arm and, previously, Alibaba, increases SoftBank's earnings vulnerability, as any downturn or regulatory shock to one large asset could substantially reduce overall net income and compress margins.
  
• Substantial increases in capital deployment-such as the up to $30 billion commitment to OpenAI and $6.5 billion Ampere acquisition-magnify financial risk, especially given SoftBank's existing high loan-to-value ratio and the need to maintain ample cash; failure of these investments to generate adequate returns could strain free cash flow and erode net asset value.
  
• SoftBank's capital-intensive expansion into AI infrastructure and data centers (e.g., Stargate) faces high execution risk, possible cost overruns, difficulty in project financing, and intense global competition; missing targets or margin compression here would weigh on both revenue growth and long-term earnings stability.

Valuation

• The assumed bearish price target for SoftBank Group is ¥7780.0, which represents the lowest 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 more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥13600.0, and the most bearish reporting a price target of just ¥7780.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ¥8080.0 billion, earnings will come to ¥160.0 billion, and it would be trading on a PE ratio of 77.6x, assuming you use a discount rate of 5.8%.
  
• Given the current share price of ¥7377.0, the bearish analyst price target of ¥7780.0 is 5.2% 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.