SoftBank seeks $100 billion for AI-refined projects from Middle Eastern investors

Masayoshi Son, founder of SoftBank, is seeking up to $100 billion from Gulf investors to establish a fund that would acquire companies and improve their operations using artificial intelligence and robotics, according to the Financial Times. The initiative comes as SoftBank faces growing concerns over its $65 billion investment in OpenAI and its delayed initial public offering (IPO).

Unlike SoftBank's previous investment vehicles, which primarily financed technology companies, the proposed fund would purchase established businesses and introduce AI and other advanced technologies to improve their operations in a bid to improve their value, which is a relatively novel model to make money on AI. Son has reportedly approached influential investors in the Middle East, including senior figures in the United Arab Emirates, in recent weeks to get the money to acquire companies that have not yet adopted AI and/or robotics, but which could substantially improve their business positions by doing so.

Roze, SoftBank's robotics and physical AI division, would reportedly play a major role in these transformations, though exact details remain unclear. Son also intends to eventually take Roze public at a substantial valuation, though neither the fund's establishment nor its financing is guaranteed. In fact, at this point it is unclear whether the fund will only finance acquisitions, or will also finance development of Roze.

SoftBank has already committed approximately $65 billion to OpenAI, and the company remains the crown jewel of its investment strategy. The Japanese company has financed its investments using internal resources, external capital, and borrowing partly secured by its holdings in Arm. Meanwhile, SoftBank's well-being significantly depends on the valuation of OpenAI, which has yet to become a highly profitable company. Despite risks associated with OpenAI valuation, SoftBank continues to pursue aggressive AI expansion.

Son has previously attracted substantial financing from Middle Eastern sovereign wealth funds. Saudi Arabia's Public Investment Fund and Abu Dhabi's Mubadala participated in SoftBank's original $100 billion Vision Fund in 2017. Since its establishment, Vision Fund 1 has accumulated approximately $29 billion in investment gains, whereas Vision Fund 2, which holds the OpenAI investment and is primarily financed by SoftBank, has generated $20.5 billion as of June. Abu Dhabi has also expanded its AI investments through MGX and G42.

Last month, SoftBank raised more than $11 billion through the largest junk bond issuance on record, with yields reaching 9.75% (i.e., very expensive borrowing as risks are high). As of June, the company's net asset value stood at ¥72.3 trillion ($456.57 billion), while its loan-to-value ratio was 13%, considerably below its normal operating limit of 25%. However, a substantial portion of SoftBank's assets is tied to technology companies, including Arm and OpenAI, so a decline in their valuations could increase the company's LTV to uncomfortable levels even without further borrowings.

Son's investment history includes Alibaba's massive success and WeWork's 2023 bankruptcy, so it remains to be seen where the current strategy leads SoftBank.

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