"‘OpenAI shadow stocks’ have crashed! SoftBank’s share price has been halved since the peak last November."

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SoftBank is paying the price for its big bet on OpenAI. As the most direct leveraged tool for ordinary investors to gain exposure to OpenAI, the stock price of the Japanese tech investment giant, helmed by Masayoshi Son, has nearly halved in four months, as concerns about the scale of SoftBank's investment in OpenAI have intensified in the market.

On Monday, SoftBank's stock plunged 9.8% in a single day, a drop more than twice that of the Japanese broad market index on the same day. The catalyst was reports that OpenAI and Oracle have abandoned plans to expand the Stargate joint data center project in Texas, in which SoftBank is an important participant.

Just last month, SoftBank announced an investment of $30 billion in OpenAI's latest $11 billion financing round, raising its cumulative investment in the ChatGPT developer to $64.6 billion and its stake to about 13%.

This sharp drop in stock price has sparked widespread concerns about SoftBank's liquidity. S&P earlier this month adjusted SoftBank's already junk-level credit rating outlook to negative, citing worries about its liquidity and OpenAI's credit quality.

Meanwhile, SoftBank is seeking bridge loans to cover this investment, until it can cash out by selling other holdings.

Stargate Project Changes Trigger Market Sell-off

The immediate catalyst for this round of stock price decline is the news that the plan to expand the Stargate data center has stalled.

According to reports, OpenAI and Oracle have abandoned plans to expand this Texas-based, jointly-supported data center project, and SoftBank is an important participant in Stargate.

This news has led the market to question the strategic logic of SoftBank's deep binding with OpenAI. Just last month, SoftBank completed a $30 billion commitment to OpenAI's new round of financing, raising its cumulative investment to $64.6 billion and its stake to about 13%.

As the prospects of the Stargate project become uncertain, outside expectations for returns on this massive bet have also wavered.

Other companies deeply involved in the OpenAI ecosystem, like SoftBank, have not been spared. Since SoftBank's stock hit a peak at the end of October last year, the stocks of Oracle and CoreWeave have both fallen by more than 40% cumulatively.

Liquidity Pressure, Ratings Downgraded

SoftBank's asset structure makes it particularly vulnerable in the current market environment. According to S&P data, more than half of SoftBank's $320 billion investment portfolio consists of unlisted, illiquid assets. This structure becomes a significant constraint when the company needs to quickly realize assets to cover huge investment commitments.

S&P recently changed its outlook for SoftBank's credit rating to negative, for two core concerns: first, the company's overall liquidity, and second, OpenAI's relatively weak credit quality. This statement undoubtedly increases the difficulty and cost of SoftBank's financing, especially as it is actively seeking bridge loans.

SoftBank currently holds liquid assets including shares of chip design company Arm, worth about $80 billion.

Previously, SoftBank had sold its Nvidia holdings, using the funds to support its early investments in OpenAI. Last week, SoftBank also pushed ahead with a $1 billion IPO of its Japanese digital payment platform PayPay in New York, despite turbulence in the Middle East.

Masayoshi Son’s “Excitement Cycles” and Leverage Logic

From a broader perspective, SoftBank’s history is essentially a series of “excitement cycles”: Masayoshi Son finds a new investment theme, investment scale expands, leverage increases, until shareholders or creditors—usually both—start to exert pressure.

Masayoshi Son is not without foresight. He profited heavily from his early bet on China’s Alibaba, and in 2017 redefined the boundaries of venture capital with the $100 billion Vision Fund. But this model has also left many failures, with WeWork being the most widely known, and the Vision Fund’s overall performance fluctuating as well.

Now, thanks to its scale, reputation, and typical leverage style, SoftBank has become a rare liquid vehicle for ordinary investors to gain exposure to big tech themes.

Analysts point out that this feature means whenever the market’s confidence in Masayoshi Son’s “grand trends” wavers, SoftBank is often the first to be reduced. Currently, SoftBank is the most direct channel for ordinary investors to make leveraged bets on OpenAI—regardless of direction.

Notably, the last time SoftBank's stock price fell sharply was in 2021, and that drop preceded a broader bear market by about eight months.

Risk Disclosure and DisclaimerThe market has risks, investment needs caution. This article does not constitute personal investment advice, nor does it take into account the unique investment goals, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are appropriate for their particular situation. Investing based on this article is at your own risk. ```