Shares in SoftBank Group fell by as much as 10% after the company announced the sale of its entire stake in Nvidia, raising concerns among investors already worried about soaring valuations of technology companies.
Shares in the Japanese company hit a one-month low in morning trading in Tokyo, after SoftBank revealed on Tuesday that it had sold its entire stake in Nvidia for $5.83 billion to fund its investments in artificial intelligence.
The decline came despite the company achieving better-than-expected quarterly results and announcing a 4-for-1 stock split.
Nvidia's stake sale raises concerns about an AI bubble
SoftBank's exit from Nvidia coincides with growing debate over whether massive spending by major technology companies such as MetaPlatforms and Alphabet, expected to exceed $1 trillion in the coming years, will yield commensurate returns.
Investors have begun to question the amount of money flowing into a sector with uncertain prospects, especially after the large gains made by leading companies in the race to develop artificial intelligence.
Nvidia shares fell 3.9% in the US trading session after rising 48% from the beginning of the year through Monday's close.
Masayoshi Son finances his projects through divestment.
SoftBank founder Masayoshi Son continues to divest a number of his investments to fund large-scale artificial intelligence projects, including the Stargate data centers he is developing in partnership with OpenAI and Oracle Corp.
Citigroup analyst Keiichi Yoneshima wrote in a research note that the company's value fluctuates according to the market's assessment of its investments, so we expect the stock to be highly volatile going forward. However, as net asset value expands, we believe investors will return to the stock.
The company seeks to be a key player in the growing artificial intelligence ecosystem, by leveraging its stakes in major companies such as OpenAI and US chip designer Ampere Computing.
The company avoids talking about an AI bubble.
During Tuesday's earnings conference call, SoftBank executives avoided answering questions about the possibility of an investment bubble in the artificial intelligence sector, stressing that the sale had nothing to do with Nvidia itself, but was a necessary funding move.
Chief Financial Officer Yoshimitsu Goto said: I can't say for sure whether we're in an AI bubble or not. We sold our stake in Nvidia to use the capital to fund our operations.
SoftBank had sold its entire stake in Nvidia in 2019, before buying back small stakes in 2020, two years before the launch of ChatGPT, which sparked a historic rally.
The company revealed that it had increased its stake in Nvidia to approximately $3 billion by the end of March. Since then, Nvidia has added more than $2 trillion to its market capitalization.
This surge, along with SoftBank’s investment in OpenAI, helped support the company’s strong earnings, as it announced a surprise net income of 2.5 trillion yen ($16.2 billion) in the second fiscal quarter, exceeding the average analyst forecast of 418.2 billion yen.
Guto said that OpenAI's value has increased by $14.6 billion since SoftBank invested in it.
