SoftBank CEO Masayoshi Son spoke at the company's annual shareholders' meeting in Tokyo on June 20, 2024.
Kosuke Okahara | Bloomberg | Getty Images
Shares in the Japanese giant closed at a record high of 11,190 yen on Thursday, a stark difference from the company's recent slump during the collapse of the dot-com bubble in the early 2000s and the tech market turmoil of 2021 and 2022.
Son founded SoftBank in 1981, when it distributed software. The company went public in Japan in 1994 and invested $2 million in Yahoo in the mid-'90s at the height of the internet boom.
This marked the beginning of the company's technology investments.
Driven by the rise of the Internet and Yahoo, SoftBank's stock price reached a record high of 10,111.1 yen on February 18, 2000. Three days earlier, the company's stock price had hit an intraday high of 11,000 yen.
As Internet-related stocks plummeted, SoftBank's stock price also plummeted, at one point falling by more than 90% from its dot-com peak.
It wasn't until almost 21 years later, on February 16, 2021, that SoftBank surpassed its all-time high.
The stock's recent climb to record highs has been shaky since Son launched his massive tech investment arm, the Vision Fund, in 2017, positioning SoftBank as a visionary trailblazer.
SoftBank has made dozens of investments in technology companies around the world, some of which have failed — office-sharing startup WeWork is perhaps one of the most well-known — but some of SoftBank's investments in Chinese companies also took a hit when Beijing began cracking down on the country's tech sector in late 2020.
SoftBank's shares traded near their then-record highs in March 2021 before plummeting along with other global tech stocks. The Vision Fund posted a then-record financial loss in 2022. Son said SoftBank would take a “defensive” stance and be more cautious with its investments. However, he reversed course shortly after the Vision Fund posted a record $32 billion loss in 2023, saying it would be “offensive” going forward as it looks to invest in AI.
SoftBank's shares began to recover around May 2023, and the Japanese giant's Vision Fund recently reported better financials amid a recovery in tech stocks in general.
“SoftBank Vision Fund has been forced to reduce various investments due to a combination of falling share prices and a tough private fundraising environment. With the reduction cycle now seemingly over, we are likely to see a more constructive IPO market going forward, particularly in AI-related investments,” Oliver Mathews, head of Asia consumer research at CLSA, told CNBC in an email.
Analysts have attributed SoftBank's roughly 78% rise in its stock price this year to the success of the IPO of Arm, which it acquired in 2016.
SoftBank will still own about 90% of Arm's shares after the IPO. Arm's shares have risen nearly 124% this year alone as of the closing price on July 3.
“SoftBank Group's investment strategy and focus has included the development of an AI ecosystem portfolio long before the LLM-led bull market in AI-related stocks over the past 18 months or so,” Paul Golding, senior U.S. lifestyle and payments analyst at Macquarie's U.S. equity research division, told CNBC in an email.
“We believe this vision partially drove our investment decision to acquire Arm in 2016, which gave SoftBank Group direct exposure to semiconductor market trends and intellectual property ownership rights on semiconductor designs, in advance of a broad range of advancements in AI use cases and platforms.”
Golding added that SoftBank shares are “benefiting from this” given the widely-known uses for Arm's intellectual property, including in the automotive industry and cloud data centers.
Investors have been paying close attention for years to whether SoftBank Group's valuation fairly reflects the assets it invests in or owns.
For example, SoftBank is valued at about $101.5 billion. Arm's market capitalization is about $176 billion, and SoftBank's 90% stake is worth about $158 billion of that. Even without taking into account Arm's other holdings and businesses, such as its communications division, this alone is significantly more valuable than the entire SoftBank Group.
Analysts cite this as a reason why SoftBank's share price does not reflect its fair value.
Dan Baker, senior equity analyst at Morningstar, said much of SoftBank's share price gains were due to Arm.
“I'm not sure investors have bought into the SoftBank story again,” Baker told CNBC in an email, adding that the stock's rise this year was “mainly” due to Arm's rising shares and the weakening Japanese yen. Baker said it's worth considering the so-called sum-of-the-parts valuation, which values the company by attributing value to different parts of SoftBank's holdings. Baker said the SOTP valuation remains just under 50% this year and SoftBank's shares don't truly reflect the value of the company's various businesses and investments.
“I don't know if investors are 'buying the SoftBank story,' but they're certainly buying the ARM story,” Baker said.
Investors also welcomed SoftBank's decision to sell almost all of its stake in Alibaba, the Chinese e-commerce giant in which Son invested in 2000.
SoftBank is also likely being boosted by the recent rally in Japanese stocks overall, with the Nikkei average up 22% this year as of Thursday.
But can Son's focus on AI make SoftBank even more valuable and erase the discount on the company's asset basket?
After staying out of the public eye for the past year, the SoftBank founder recently spoke about his excitement about the future of AI and why SoftBank is positioned to be at the heart of the technology through its investments in companies like Arm.
Last month, Son unveiled his vision of a world with what he calls artificial superintelligence (ASI), a machine that is 10,000 times smarter than humans.
This comes at a time when investors are eager to figure out how to capitalize on the AI boom, with Nvidia's stock price surge highlighting the excitement around the technology.
CLSA's Mathews said the SoftBank discount may decrease going forward thanks to the company's early AI investments.
“SoftBank has been consistent in its investment philosophy. It was one of the earliest investors in AI, but in some ways it was too early and many investors thought it was overpaying or investing in companies that weren't clearly relevant to AI,” Matthew said.
“As a result, SoftBank Group's shares are trading at a surprisingly large discount to fair value, and we believe this discount will narrow in the future.”
