SoftBank shares climb 14% despite investment giant posting $7 billion quarterly loss on data-centre costs

SoftBank shares rose 14% Tuesday before the company reported a $7 billion quarterly net loss, announced after markets closed. The loss reflected costly US data-centre investments, rising financing expenses and volatile portfolio valuations, despite sales growth and an investment gain from ByteDance.

SoftBank shares jumped 14% to close at JPY 3,872 on Tuesday, even as the Japanese investment giant subsequently reported a second-quarter net loss of around $7 billion. However, investors did not get an opportunity to react to the earnings disappointment during the trade, as the results were announced after the market closed.

Most Asian technology stocks surged on Tuesday, tracking an overnight rebound on Wall Street as a sharp decline in crude oil prices lifted sentiment. Renewed buying in semiconductor stocks also spilled over into Asian markets following last week's bruising sell-off.

Investors will get their first opportunity to react to SoftBank's earnings disappointment on Wednesday, after the company swung to a second-quarter net loss of $7 billion, hit by hefty investments in US data-centre projects and rising financing costs.

The loss significantly exceeded analysts' forecasts and marked a sharp reversal from the year-ago period.

Tokyo-based SoftBank Group Corp. reported a profit of 2.5 trillion yen in the corresponding period a year earlier, benefiting from a large gain on its investment in OpenAI.

Analysts say SoftBank's financial performance can be difficult to predict because of its extensive investment portfolio, which includes companies such as OpenAI and Arm Holdings, whose valuations and fortunes can be volatile.

Data-centre investments and rising financing costs weigh on SoftBank

One of the most significant disclosures was a loss of 597.2 billion yen ($3.73 billion) arising from advance payments for equipment for US data-centre projects after plans were changed. However, SoftBank said it would be eligible for rebates of up to $2.1 billion on future purchases.

The results also highlighted mounting financing costs, which more than doubled during the July-September quarter. The group raised $56.5 billion during the period, its highest-ever quarterly total, as founder Masayoshi Son continued to pursue an aggressive investment strategy centred on artificial intelligence.

The borrowing during the quarter included an $11.87 billion term loan, a $10 billion dollar-denominated corporate bond, and a 1 trillion yen-denominated corporate bond, according to Reuters.

SoftBank also increased the margin loan backed by its stake in chipmaker Arm by $5 billion to approximately $25 billion, the report said.

While SoftBank's stake in TikTok parent ByteDance generated an investment gain of $1.3 billion during the quarter, shares of other major publicly listed portfolio companies, including Coupang and Grab, declined.

AI investment boom faces fresh investor scrutiny

The semiconductor industry, which has largely benefited from massive spending by hyperscalers on AI infrastructure, is now facing growing uncertainty amid regulatory scrutiny, higher interest rates, and concerns over the returns on massive AI investments.

The Democratic Party's sweeping success in the US midterm elections last week heightened expectations of increased regulatory scrutiny of the AI industry, adding to investor concerns about whether the enormous capital expenditure by technology companies will generate adequate returns.

The sector also faced fresh uncertainty following reports concerning Nvidia CEO Jensen Huang and allegations involving a Chinese businesswoman suspected of having links to Beijing.