Jefferies Managing Director Atul Goyal Joins Yahoo Finance Live to Discuss SoftBank and Nvidia Generative AI Partnership Announcement, SoftBank’s Upcoming IPO, and Whether Subsidiary Arm Ltd Could Be the Next Big AI Business increase.
video transcript
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Brad Smith: AI hype is dominating the market. SoftBank and Nvidia stocks surged today after news that the two companies are partnering on a generative AI platform. And our next guest says this could be the next big move in AI. Here we have Atul Goyal, managing director of Jefferies. Please describe your thesis to us here. Tell me why this is probably the next big boost we’ll see, especially from his Nvidia company, which continues to make headlines and maintain mindshare among some of its corporate partners. please give me. But the market as a whole is in a broader push towards AI.
Atul Goyal: Thanks for hanging out with me, Brad. A clear distinction to make here is that he is actually two different companies of his, SoftBank Corp. and SoftBank Group, which announced a partnership with NVIDIA. In other words, SoftBank Corp. did not rise yesterday. SoftBank Group Corp. rose 8%. The partnership is actually between SoftBank Corp and NVIDIA.
Meanwhile, a few years ago, if I remember, NVIDIA was trying to buy Arm. It was from Softbank, and they waived the deal. That angle is still valid to some extent.
SoftBank Group is now looking to list Arm later this year. Also, most of the company’s products and sales are for mobile phone devices, but some are for data centers, where it competes with Intel. And that’s likely where they’ll be emphasizing and dressing up as an AI effort for the data center. In short, dress up. Softbank shares are expected to perform well in preparation for the listing. But going up too quickly is something that worries us a little bit now. The IPO is still months away.
Julie Hyman: So, would you buy Arm dressed up as this AI play? But is that something investors should be paying attention to?
Atul Goyal: So Julie, thank you. There are several companies that you may consider investing in. So invest. you make a stand. I may buy or sell slightly smaller positions, but I will invest. And then there are other stocks that you are actively trading. From our point of view, the SoftBank Group is like a stock that can be bought and sold. There are chances, but they give you chances. And sometimes there are chances that it gives you. It is currently trading very close to our fair price. By late November, it had reached 7,000, which was far too high. Downgraded to sell. And once I got close to my target price, I upgraded to hold.
Now we’re waiting for the stock to live up to the AI hype for Arm. And the stock price is expected to rise significantly there. For every $10 billion increase in our valuation, SoftBank stock could rise about 15%. So we’re currently valuing it at about $40 billion. But if the hype reevaluates Arm even higher, then it will have the opportunity to create a higher-level SoftBank at that point.
However, as history shows, there have been two such cases. In 2013, Softbank was Alibaba’s largest owner. Unfortunately that was in 2014. The company went public on the same day that SoftBank shares hit a record high. And it didn’t touch the same stock for months and years after that. Same thing happened with Uber. In other words, the risk is that the stock price will rise sharply toward Arm’s IPO, but then crash. That’s what we are conscious of embarking on that hype. Does it make sense?
Brad Smith: Yes indeed. And given that some of the biggest beneficiaries have at least seen their own stocks move as a result of the AI hype, that hype has started to subside and earnings have rightfully become a priority among investors. And in tandem with the return to business fundamentals and some of the demand they’re seeing, or at least projecting, we’re hearing that chip companies are kind of companies. With that in mind, are there three big companies you can expect to outperform? What are the broader totem pole foundations for AI?
Atul Goyal: So, globally, our view, our view, and Jefferies’ view is essentially that, on the back of this investment, semi-cap equipment manufacturers such as AMAT, Lam Research, Tokyo Electron, and ASML It means that you are likely to benefit from it. AI-Driven Pursuit — Adding to the AI hype is the tremendous amount of support governments in the United States, Japan, and Europe are giving these chip makers to establish manufacturing capabilities outside of China and Taiwan. There is also And in doing so, all that money would be spent on building capacity.
Therefore, not only these companies, but also others such as AMAT, ASML, Lam Research and Tokyo Electron could benefit enormously as this cycle begins. So they’re already off the low. But over the next three to five years, these companies could also benefit significantly.
Julie Hyman: Mr. Atul, I wanted to ask a broader question. Because we have seen such an incredible rise in the Japanese market more broadly. That’s not necessarily the case with the large Japanese tech stocks you’re covering. Softbank, for example, does not do the same thing as the market. But I’m kind of curious what you think about it, given the recent enthusiasm in the Japanese market.
Atul Goyal: Julie, I’m so glad you mentioned that. It’s a very unique thing happening in Japan. And it’s not just Japan hitting new highs for the first time in 30 years. It’s just a digression. The real story is another. And I’ve been covering Japanese equities for almost 20 years, and I’ve been skeptical about Japan for a long time. I believe there are very few good companies, great companies, invest in them and stay long.
But we are at a crossroads with a lot of pressure in Japan, and companies can be stigmatized and shamed if they don’t do the right thing. So, collectively, thousands of companies are on the right track to improve their return on equity. To do that, we need to collectively do certain things in the right way. I haven’t seen this kind of movement in 20 years. And this is really the first time.
Therefore, tourism investors will also come. Japan does very well once every 3, 4, 5 years. It’s always like that. But this is something more, something deeper. As for the breadth of the market, you said that the market in Japan is very wide, while the market in the United States is very narrow. This is a very important thing that is happening in Japan. And I’m not sure it’s encapsulated in the right way, other than to emphasize that it’s creating new highs in the index.
Julie Hyman: But you’re making it sound like this is a real, deeper tipping point, and if what you’re saying is true, the highs are likely to widen across the market out there. would mean that there is
Atul Goyal: Look, this is another 30-year index high that we broke. it doesn’t matter. Overall, I believe we will see new heights in the next year or two. The amount of money coming into Japan, the amount of interest coming into Japan is something I haven’t seen in a long time. And this time really, it’s for pure reasons. If a company’s return on equity rises and the company is willing to sell non-core assets, it can generate cash. I cover a company and it’s an investment. Sony is my number one choice. Even that company, while continuing to win in multiple places, recently announced its exit from Sony Financial Holdings. It is a non-core insurance business. they are spinning it off.
That means that companies that have performed very well in the past, say, six, seven, eight years, have seen their stock prices increase by about seven times. Very good for shareholders. Consistently above 15%. Yet they are doing the right thing.
So it’s not just 1, 2 or 10 companies under pressure. Overall, Japan Inc. is doing a phenomenal job. And also not enough investors are paying attention. They only look at the index. A very wide-ranging movement is taking place. And this is very notable. Carrots don’t work very well in Japan, so I’ve never seen anything so important. And the policy of naming and shaming some companies and downgrading them from prime to standard really works.
Brad Smith: Mr. Atul Goyal, Managing Director of Jefferies, provided really great insight and analysis. Thanks for the conversation this morning. thank you.
Atul Goyal: Thank you Brad. thank you –
