To The Moon

SoftBank Group's share price continues to face heavy pressure, with its market capitalization having shrunk by more than half from its June peak, reflecting deep-seated market doubts about the sustainability of the artificial intelligence investment boom.

On Thursday, SoftBank shares fell 6.9% in a single day, bringing the cumulative decline since hitting a record high on June 2 to 50%. Its market value has contracted to approximately 24.7 trillion yen (about $157 billion), falling behind Hitachi and Recruit Holdings, a far cry from four months ago when it briefly surpassed Toyota Motor to claim the title of Japan's largest company by market capitalization. Earnings reports from major U.S. technology companies failed to boost market confidence, and SoftBank has become the worst-performing constituent of the Nikkei index this month, with a decline of more than 30% during the month, erasing all gains accumulated since September.

The trigger for this sell-off came from cloud computing service provider CoreWeave. The company's bond prices fell to distressed levels, sparking widespread concerns about financing risks across the entire AI industry. At the same time, the cost of insurance against SoftBank's debt defaults has risen sharply, with credit default swap (CDS) spreads climbing to their highest level in nearly four years on Tuesday, as investor vigilance over its highly leveraged structure has clearly intensified.

CoreWeave Shockwave Spreads, AI Financing Risks Surface

CoreWeave's bond prices falling into distressed territory became the key trigger for this round of market turmoil, exposing systemic financing risks along the AI infrastructure investment chain.

SoftBank's Vision Fund has extensive holdings across the AI ecosystem, with investments spanning infrastructure, energy, and robotics, relying heavily on debt financing to support its vast investment portfolio. CoreWeave's liquidity difficulties have shaken the confidence of stock investors who had previously focused on betting on AI returns, and SoftBank's financial fragility has been thrust into the spotlight as a result.

Kazuyuki Muramatsu, head of investment management at Nagomi Capital, said: "Given SoftBank's highly leveraged financial structure and rising financing costs, its vulnerability is becoming increasingly apparent as investors scrutinize the financial health of AI-related companies." He further noted that if global market sentiment toward the AI growth story shifts, it could lead to valuation losses in the Vision Fund, which would in turn push up risk premiums for future financing, creating a vicious cycle.

High Leverage Structure Under Pressure, Debt-Fueled AI Bet Questioned

SoftBank completed a record-breaking financing in September this year to support founder Masayoshi Son's ambitious AI plans, but now faces the dual squeeze of rising borrowing costs.

In September, SoftBank raised $11.1 billion through the issuance of corporate junk bonds, setting a record for the largest corporate junk bond issuance in history. However, as global borrowing costs rise, the potential risks of this high-leverage strategy are being repriced by the market. SoftBank's CDS spreads have risen to near four-year highs, indicating that creditors' concerns about its debt repayment capacity have clearly intensified.

It is worth noting that SoftBank's investment in OpenAI has reached nearly $65 billion. However, OpenAI is facing challenges from low-cost AI competitors in China, which offer comparable performance at more affordable prices. This brings additional uncertainty to valuation expectations for SoftBank's core assets and raises questions about whether its massive bet can deliver returns.