SoftBank posts $1.5bn quarterly profit as it shifts to AI investment

SoftBank has made a profit for the second quarter in a row as the Japanese conglomerate seeks to capitalise on UK chip designer Arm’s surging valuation and build a war chest for its push into artificial intelligence.

The group recorded a net profit of ¥231bn ($1.5bn) in the quarter to the end of March, beating analysts’ expectations of a ¥23.3bn profit, according to S&P Capital IQ.

However, the fourth-quarter results did not make up for a weak start to the year, with the group falling to a full-year net loss of ¥227.6bn. SoftBank last made an annual profit in the fiscal year ending March 2021, when the Covid-19 pandemic supercharged tech stocks.

Despite the full-year loss, analysts and investors are increasingly confident that SoftBank founder Masayoshi Son will develop an aggressive AI strategy based around its UK subsidiary Arm, of which it owns 90 per cent.

“Arm is central to our AI shift . . . so Arm and the portfolio companies should create a new ecosystem going forward,” said Yoshimitsu Goto, SoftBank’s chief financial officer, on Monday. “That is our view and expectation.”

Goto added that “to keep changing is the biggest risk hedge our company can take”, underlining SoftBank’s intent to keep investing in AI.

Last year, Son, who has stepped back from presenting SoftBank’s earnings, said the company was ready to go on the “counteroffensive” after nearly three years of asset sales and hoarding cash.

The Japanese group has sold down billions of dollars in investments made by its Vision Funds — which made an investment loss of ¥57.5bn in the fourth quarter — building up a store of dry powder that it can deploy. The group had ¥6.2tn of cash on hand at the end of March.

“The key takeaway is they are selling a lot more than they are investing. The expectation is they are building a war chest, probably for AI, but they are well positioned to start investing wherever they wish,” said Kirk Boodry, a SoftBank analyst at Astris Advisory in Tokyo.

Arm is central to Son’s plans, with SoftBank planning to reposition its strategy around the chip designer, which has been one of the biggest beneficiaries of an AI spending boom since it listed on Nasdaq in September.

“The share price is still driven by Arm,” said Boodry.

The Financial Times reported last year that Arm was developing its own chip to showcase the capabilities of its designs. On Sunday, the Nikkei newspaper reported that Arm and SoftBank might move beyond chip design into production. SoftBank’s Goto did not comment on the report.

“We have great coverage, and, and don’t feel like [moving beyond chip design is] something that’s necessary,” Arm’s chief financial officer Jason Childs told journalists during the results presentation in Tokyo.

The group is doing some AI deals through SoftBank instead of the Vision Funds in order to avoid the need for an exit, said Goto.

SoftBank last week led an investment of more than $1bn in UK self-driving car start-up Wayve in its search for AI investments.

Although Vision Fund executives were responsible for assessing and valuing Wayve, the money for the deal came from SoftBank rather than its Vision Funds. The investment was signed off by Son, which executives said was due to the deal’s size and AI theme.