SoftBank stock hits its first record high in 24 years — Arm and AI helped it get there

[ad_1]

Masayoshi Son, CEO of SoftBank, speaks during the company’s annual general meeting in Tokyo on June 20, 2024.

Kosuke Okahara | Bloomberg | Getty Images

SoftBank Group shares hit a record high on Thursday, just as the company’s massive tech investment arm shows signs of recovery and its outspoken founder Masayoshi Son emerged back into the public spotlight to align the Japanese giant to a future in artificial intelligence.

The firm has also been helped by the public market success of British chip designer Arm, in which Softbank has a majority stake.

Shares of the Japanese giant closed at a record high of 11,190.00 Japanese yen on Thursday — a far cry from the dotcom crash of the early 2000s and a more recent downturn for the company during the tech market troubles of 2021 and 2022.

SoftBank’s journey to the peak

Son founded SoftBank in 1981, back when the company distributed software. It went public in Japan in 1994, and, amid the internet boom, made a $2 million investment in Yahoo in the middle of that decade.

That started off the company’s tech investments.

The rise of the internet and of Yahoo pushed SoftBank’s stock to a peak closing price of 10,111.1 yen on Feb. 18, 2000. Three days prior, the firm’s shares had hit an intraday high of 11,000 yen.

As internet stocks came crashing down, so too did SoftBank’s share price, which at one point sank more than 90% below its dotcom peak.

It wasn’t until nearly 21 years later, on Feb. 16, 2021, that SoftBank exceeded its previous record-high close.

Vision Fund

Jefferies shares its outlook for SoftBank's stock

SoftBank’s share price began a recovery from around May 2023, and the Japanese titan’s Vision Fund more recently posted better financials amid broader tech stock recoveries.

“Softbank Vision Fund had to write down various investments due to a combination of equity values declining and a tougher private financing environment. It looks like the write down cycle is mostly done, and there is a good chance that the IPO market will be more constructive going forward, especially for AI related investments,” Oliver Matthew, head of Asian consumer research at CLSA, told CNBC by email.

Arm chip boost

Arm CEO Rene Haas talks the impact of AI and smartphone demand

Do investors believe the SoftBank story?

Over the years, investors have focused on whether SoftBank Group’s valuation fairly reflects the assets it is invested in or holds.

For example, SoftBank’s valuation is around $101.5 billion. Arm’s market capitalization is around $176 billion — meaning that SoftBank’s 90% stake is equivalent to about $158 billion of that figure. That alone is significantly above SoftBank Group’s overall valuation, without taking into account the company’s other holdings and businesses, such as its telecommunications arm.

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 a lot of SoftBank’s price appreciation comes down to Arm.

“I’m not sure that investors are convinced by the SoftBank story again,” Baker told CNBC by email, adding that this year’s share gain is “primarily” because Arm stock has risen, while the Japanese yen has weakened. Baker said it is worth looking at the so-called sum-of-the-parts (SOTP) valuation, which ascribes value to the various parts of SoftBank’s holdings to figure what the company is worth. Baker said the SOTP valuation remains just under 50% this year, meaning SoftBank’s stock does not truly reflect the value of its various businesses and investments.

“So I’m not sure that investors are ‘buying the SoftBank story’ but investors are certainly buying the ARM story,” Baker said.

Investors have also cheered the fact that SoftBank has sold practically all of its shares in Alibaba, the Chinese e-commerce giant that Son backed in 2000.

SoftBank has also likely been helped by a recent broader rise in Japanese stocks, with the Nikkei 225 Index up 22% this year alone as of Thursday.

Artificial super intelligence

SoftBank CEO goes on 'AI offensive' after selling Nvidia too soon

CLSA’s Matthew said SoftBank’s discount could reduce, going forward, thanks to some of the company’s early AI investments.

“Softbank has been absolutely consistent about its investment direction; they were among the earliest investors behind the AI theme, and in some ways too early so many investors thought they were overpaying, or buying into certain companies where it wasn’t clear how AI was related,” Matthew said.

“As a result, Softbank Group shares trade at a surprisingly wide discount to its fair value, and we believe this discount will narrow in the future.”

[ad_2]

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *