Sharp 10% drop knocks Japan off its market capitalization throne! Behind SoftBank's risky bet on AI, high leverage risks are being questioned.

SoftBank Group, after a continuous rise, surpassed Toyota in stock price to become the highest market value publicly listed company in Japan. Although it was overtaken by Toyota after a 11% pullback in stock price today, this achievement has brought the tech investment giant back into the spotlight, sparking intense debate in the market: Is SoftBank using high leverage to bet on artificial intelligence and taking on excessive risk? "The Return of the King" in the AI frenzy This year, fueled by investors' fervent pursuit of the AI sector, SoftBank's stock price has soared by about 70%. This upward trend is mainly driven by two factors: the skyrocketing valuation of Arm Holdings, a chip design company under SoftBank, and strong expectations in the market for a sensational IPO from OpenAI this year. Earlier this week, this strong rebound helped SoftBank surpass Toyota Motor Corp. Sponsored ADR in market value rankings, solidifying its dramatic turnaround. Just a few years ago, the company was deeply embroiled in a crisis due to its failed bet on WeWork, resulting in accumulated investment losses of over $14 billion. Now, it seems to have emerged from that darkest moment. Aggressive leverage and hidden risks However, several analysts have warned that the market's renewed optimism towards SoftBank may be masking its increasingly heightened balance sheet risk. "SoftBank has turned itself into a highly leveraged bet on artificial intelligence, which brings enormous upside potential but also significant risks," said Gil Luria, Director of Equity Capital Markets Technology Research at Davidson. The scale of this "bet" is staggering. The company participated in OpenAI's fundraising last year, reportedly valuing the latter at $300 billion at the time. Since then, the company has continued to expand its investments in OpenAI. To support this ambition, SoftBank raised a $40 billion bridge loan in March this year to fund additional investments in OpenAI and for general corporate purposes. According to its financial statements, by the end of 2025, SoftBank's interest-bearing debt is approximately 16.3 trillion (about $104 billion). S&P Global, Inc. estimates that after an additional $30 billion investment, OpenAI accounts for about 30% of SoftBank's investment portfolio, which is equivalent to the share of Arm Holdings. In light of this, S&P Global, Inc. revised SoftBank's credit rating outlook to "negative" in March, stating that the company's asset liquidity, portfolio quality, and financial capacity may deteriorate due to this massive investment. "For better or for worse"? For some investors, the core concern is not just the total debt amount, but also SoftBank's increasing dependence on a single company in the future. "SoftBank's risk exposure is huge and growing. If OpenAI fails to fulfill its promises, SoftBank could easily fall into a liquidity crisis," said Richard Windsor, founder of stock research company Radio Free Mobile. As the reliance on OpenAI deepens, the consequences could be dire once enthusiasm around AI valuations cools off. Luria pointed out, "If OpenAI fails to IPO successfully at its current or higher valuation, given SoftBank's massive risk exposure, this will put significant pressure on the company." Previously, following a record-breaking $122 billion funding round in March, OpenAI was valued at $852 billion. Jay R. Ritter, Professor Emeritus at the Wharton School, also believes that SoftBank's leverage amplifies the dual nature of the trade. "Investing in SoftBank is largely a leveraged bet on OpenAI," he said. "If OpenAI performs well, leverage is a weapon; but if OpenAI and other investments perform poorly, leverage will severely impact SoftBank." Furthermore, SoftBank's vast investment portfolio still has other weaknesses, including underperforming holdings such as Coupang and Didi. There is also the painful lesson of WeWork - the unicorn, once valued at $47 billion, ultimately filed for bankruptcy protection in 2023, forcing SoftBank to bear huge losses, vividly illustrating the dangers of concentrated bets. Bullish view: Controllable risks, promising future Despite ongoing warning signals, some investors believe that the risks are still within manageable limits. Richard Kaye, portfolio manager at Comgest, pointed out that SoftBank's assets fully cover its debt, with the loan-to-value ratio still below 25%. "SoftBank's debt is sustainable because the total borrowings are less than 25% of the immediate market value of the equity," Kaye said, noting that lenders are still willing to provide financing based on SoftBank's equity. He believes that even if OpenAI disappoints, it would only result in a one-time asset write-down, not trigger solvency issues or a liquidity crisis, as SoftBank holds enough equity to offset such losses. Facing external scrutiny, Masayoshi Son defended his aggressive advancement in AI during an interview. He called this technological revolution an opportunity "50 times bigger than the internet bubble" and argued that any pullback in AI-related stocks in the future would be a buying opportunity, not a structural threat.