Elliott's Bold Play: SoftBank's AI Dreams Vs. Investor Demands

Zinger Key Points
  • Elliott's $2 billion SoftBank stake demands $15 billion buyback amid skepticism over Son's AI-focused investment strategy.
  • SoftBank surges with Arm's success, invests $9B annually in AI, yet faces investor doubts on resource utilization.

Activist investor Elliott Investment Management has taken a bold stance, buying a $2 billion stake in Japanese conglomerate SoftBank Group Corp SFTBF SFTBY and demanding a $15 billion share buyback, according to the Financial Times.

The underlying message? Investors like Elliott aren't convinced that SoftBank’s Masayoshi Son has truly learned from past mistakes at the Vision Fund.

SoftBank's Optimistic Surge

SoftBank's stock has surged nearly 50% this year, buoyed by the impressive rally of Arm Holdings Plc ARM, the chip designer it controls, whose shares have more than tripled since going public last year.

This resurgence has reinvigorated Son, who is now diving into AI and robotics, with SoftBank flaunting a hefty $39 billion cash reserve and several AI deals on the table.

SoftBank’s Big Moves in AI

SoftBank isn’t just sitting on its cash; it’s aggressively investing in AI.

The company announced five large AI-related deals, including a $200 million investment in healthcare data company Tempus AI, Reuters reports.

Son, inspired by Arm’s success, envisions a $100 billion chip venture to compete with Nvidia Corp NVDA and supply AI services.

In April 2024, SoftBank committed to developing a “world-class” Japanese-language generative AI model, planning to invest $960 million over the next two years to bolster its computing facilities, including purchasing advanced GPUs from Nvidia.

In May, SoftBank pledged $5 billion to AI after three years of losses, and it aims to invest $9 billion annually in AI while hunting bigger deals.

Noteworthy investments also include leading a $1.05 billion funding round for UK self-driving car startup Wayve and negotiating to acquire British chip designer Graphcore.

Related: SoftBank’s Billion-Dollar Bet: Switching From Startups To Semiconductors, AI

SoftBank’s AI Ambitions Vs. Investor Returns

SoftBank’s strategy involves direct investments in strategically important companies, sometimes taking controlling stakes.

However, Son’s latest moves have yet to convince all investors.

The critical question remains: how will SoftBank utilize its resources and cash reserve? Investing in new ventures, paying down debt, or buying back shares?

Despite its ambitious AI push, SoftBank's portfolio value lags, with a market cap of $91 billion, just half of its total asset value.

Son's reputation varies from moments of brilliance to occasional missteps. The success of Arm has boosted his image, but selling down its 90% stake could diminish value.

Plus, SoftBank's AI investments haven't hit the same heights as industry leaders like OpenAI. While Son seeks redemption, Elliott and other investors might simply want a solid return.

The clash between SoftBank's grand AI ambitions and Elliott's push for immediate returns will define the next chapter of this high-stakes saga.

Read Next: Elliott Management Rebuilds Significant Stake In Masayoshi Son’s Softbank, Pushes For $15B Share Buyback: Report

Photo: StreetVJ/Shutterstock.com

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