SoftBank reports first quarterly loss in two years! $3.7 billion impairment in US data center project, AI investments face pressure

SoftBank Group has recorded its first quarterly net loss in nearly two years, primarily due to a massive impairment charge from its U.S. data center project, compounded by a broad decline in tech stock valuations dragging down its investment portfolio. Doubts over the sustainability of the AI boom are being reflected in tangible financial costs.

On Tuesday, SoftBank announced that for the fiscal second quarter ending September 30, it posted a net loss of 1.12 trillion yen (approximately $7.1 billion), a sharp contrast to the market’s expectation of a 129 billion yen profit, and compared to a net profit of 2.5 trillion yen in the same period last year. The loss is mainly attributed to a $3.7 billion (59.725 billion yen) charge—the company wrote off an already-paid, non-refundable advance payment due to a revision in procurement plans for power equipment at its Ohio data center campus in the U.S.

This earnings blow has heightened market caution regarding SoftBank’s AI strategy risks. Since its June peak, SoftBank’s share price has tumbled more than 50%, weighed down by concerns over increased regulation following the Democratic Party’s landslide victory in the U.S. midterm elections, and the financial pressure from founder Masayoshi Son’s aggressive leveraging to bet on AI.

Despite posting a much larger-than-expected loss, SoftBank shares closed up 13.9% on Tuesday, mainly due to a rebound in the broader Asian tech sector following a rally in U.S. stocks.

The core of this quarter’s loss comes from major changes in SoftBank’s procurement arrangements for its U.S. AI data center project. In the first half of the fiscal year ending September 30, the company recorded a total loss of 59.725 billion yen due to “realigning” procurement plans for power equipment for its U.S. AI data center project, which included non-recoverable advance payments made to secure equipment and capacity.

SoftBank positions itself as a central player in large-scale AI infrastructure construction, and its Ohio data center campus is a testament to this ambition. However, there remains considerable uncertainty between investing heavily in AI infrastructure and actual deployment, and such uncertainty has translated directly into financial losses.

SoftBank’s flagship Vision Fund business also came under significant pressure this quarter. The Vision Fund segment posted a quarterly loss of 81.6 billion yen, compared to a profit of 2.38 trillion yen a year earlier, while analysts had expected continued profitability in this segment.

Structurally, Vision Fund 1 posted an investment loss of 3.86 billion yen, mainly from declines in shares of listed holdings such as Coupang and Grab, despite its investment in ByteDance contributing about $1.3 billion in unrealized gains. Vision Fund 2 reported investment gains of 89.26 billion yen, but the combined investment gains for the entire Vision Fund segment were just 85.45 billion yen, down sharply from 2.81 trillion yen a year earlier.

Share price declines in chip giant Arm Holdings and Intel, as well as a valuation drop in Korean e-commerce platform Coupang, further eroded SoftBank’s overall earnings.

OpenAI is the core target of SoftBank’s AI investment strategy. As of the end of September, SoftBank’s cumulative investment in OpenAI reached $54.6 billion, with a corresponding fair value of $99.6 billion, and cumulative investment gains of about $45 billion. The company stated that the fair value of its OpenAI holding has remained unchanged since March of this year.

However, the overall valuation of AI unicorns is undergoing a reset. According to Bloomberg, OpenAI ultimately completed a financing round of about $11 billion at a $125 billion valuation, lower than the previously sought $140 billion valuation and $30 billion fundraising amount. Meanwhile, Anthropic’s valuation was at one point cut to $110 billion, well below the previously rumored $200 billion level.

Financing pressures are also worth noting. SoftBank’s overall financing costs surged this quarter to 461.9 billion yen, driven by margin loans backed by its Arm holdings, substantial bond issuance, and generally higher borrowing rates. Masayoshi Son’s reliance on debt markets to fuel AI investments makes SoftBank bonds highly sensitive to market sentiment, with credit default swap (CDS) spreads rising to multi-year highs.

In addition to internal financial strain, SoftBank faced several external adversities this quarter.

The U.S. midterm elections delivered a landslide victory for the Democratic Party, leading to widespread market concerns that the new Congress would impose stricter regulatory scrutiny on AI data center construction—an expectation that triggered a sharp correction in global tech stocks last week, directly impacting SoftBank.

Relatively noteworthy, just prior to its earnings release, SoftBank announced a partnership with Grab and Malaysia’s national oil company PETROS to jointly commit at least $1.85 billion in initial capital for AI infrastructure development in Malaysia. The long-term goal is to establish at least 5 GW of AI computing capacity, demonstrating SoftBank’s ongoing efforts to advance its AI presence in Asia. On the revenue side, this quarter’s income was 2.22 trillion yen, above the market expectation of 2.02 trillion yen, supported by growth in its telecom and AI computing businesses.