OpenAI's soaring valuation boosts profit, SoftBank's Q3 turns losses around but falls short of expectations.

After SoftBank Group turned a profit following the increase in valuation of its investment in OpenAI by Masayoshi Son, the Japanese company consolidated its position as an investment agent for ChatGPT creators. The net profit for the third quarter (ending in December) announced by SoftBank was 248.59 billion yen (approximately $16 billion), which was lower than the analysts' average expectation of about 857 billion yen. The Japanese giant stated that in the third quarter ending in December, it gained $4.2 billion in profits from its investment in OpenAI, offsetting the losses from the drop in Coupang (CPNG.US) stock price. This marks the fourth consecutive profitable quarter for this tech investment company, and the first one since 2021. Investment in OpenAI becomes a focus SoftBank has invested over $30 billion in OpenAI and as of last December, it holds an 11% stake in the company. The company has been in talks to invest an additional $30 billion, which would bring OpenAI's valuation to approximately $750 billion to $830 billion. SoftBank stated on Thursday that its estimated investment return in OpenAI as of last December was $19.8 billion. Investors have been watching closely to see how SoftBank will fund its ongoing investments, especially in the still unprofitable field of OpenAI. OpenAI is currently one of SoftBank's largest holdings, alongside the company's approximately 90% stake in chip design company Arm Holdings (ARM.US). This makes the Japanese company's stock closely tied to the performance of ChatGPT, compared to competitors such as Alphabet Inc. Class C's Gemini and Anthropic's Claude. BTIG analyst Jesse Sobelson wrote in a report on Thursday before OpenAI's financial results were released that SoftBank is the "only true way in the public markets today to directly invest in OpenAI" and estimated that the startup accounts for 30% of SoftBank's net asset value. The report stated, "The next round of financing for OpenAI could prompt a revaluation of SoftBank's ownership of the company" and serve as a catalyst. BTIG expects to receive or seek payment of investment banking fees from SoftBank within the next three months. As founder Masayoshi Son seeks to play a greater role in shaping future technology, SoftBank has also increased its investments in other areas of the artificial intelligence ecosystem. Last month, the company signed a $30 billion deal to acquire private equity firm DigitalBridge Group Inc., which owns digital infrastructure companies such as AIMS, AtlasEdge, DataBank, Switch, and Vantage Data Centers. SoftBank had previously announced a joint investment of $50 billion with OpenAI, Oracle Corporation (ORCL.US), and MGX of Abu Dhabi to build data centers in the U.S. Additionally, SoftBank had previously attempted to acquire data center operator Switch for approximately $50 billion, but negotiations stalled earlier this year. SoftBank announced on Thursday that it has added a new business unit called the "Artificial Intelligence Computing Division" to its financial reports. This division will include chip design company Arm, as well as two other semiconductor companies acquired by SoftBank, Graphcore and Ampere. To raise funds, SoftBank announced on Thursday that it has further reduced its stake in T-Mobile US (TMUS.US) and increased the financing loan amount based on its mobile business arm's stock holdings. Previously, the company sold all of its NVIDIA Corporation shares for $5.8 billion and expanded the financing loan size based on its Arm stock holdings. S&P Global, Inc. warned last month that the accelerated pace of investments, combined with the significant decline in the value of Arm stock at the end of last year, is putting immense pressure on its credit rating. Analysis indicates that SoftBank faces over $20 billion in refinancing by 2026, and due to supply risks, the trading prices of its bonds fluctuate significantly. SoftBank can raise funds by managing loan-to-value ratios and selling assets, but this will further weaken the liquidity of its investment portfolio.