SoftBank Poised for Profit Return as Vision Fund’s Tech Stocks Rebound

Japan’s tech conglomerate, SoftBank Group, is expected to announce a return to profitability in its upcoming first-quarter earnings report, bolstered by a resurgence in the technology stocks held by its Vision Fund investing arm. After enduring two consecutive years of losses due to the decline in the Vision Fund’s portfolio value, SoftBank’s potential turnaround signals a positive shift for the company’s financial outlook.

The Vision Fund’s portfolio of technology stocks has experienced a notable rebound, a welcome relief for SoftBank. The conglomerate’s recent strategy has involved offloading some of its holdings, most notably its stake in Chinese e-commerce giant Alibaba Group Holding, in order to strengthen its balance sheet amidst challenging market conditions.

The prospect of a return to profitability could alleviate pressure on SoftBank’s founder and CEO, Masayoshi Son. Son had previously garnered attention for his audacious bets on late-stage startups, but these ventures encountered significant hurdles, resulting in several high-profile disappointments.

Investor attention is also keenly focused on the potential blockbuster listing of chip designer Arm, a key component of SoftBank’s portfolio. A successful Arm listing would not only inject more cash into the group but also enhance Son’s reputation as a forward-thinking tech investor. Rolf Bulk, an analyst at New Street Research, emphasized the significance of this potential listing, stating, “It’s a significant catalyst for the company and a very important event for tech community in general given Arm’s pivotal position in semiconductors.”

Anticipation is high as SoftBank is projected to report a net profit of 75 billion yen ($525 million) for the April-June quarter. These estimates are based on an average of four analyst predictions compiled by Refinitiv.

The Vision Fund unit, which had experienced five consecutive quarters of investment loss, is showing signs of a rebound. The fund had previously invested in high-growth firms that subsequently fell out of favor with the market, prompting SoftBank to adopt a more defensive stance to preserve its financial standing.

Analysts are optimistic about the resurgence of public and private valuations in the tech sector. The gains posted during the quarter by companies such as food delivery service DoorDash and ride-hailing business Grab Holdings indicate a positive trend. This upward momentum could potentially pave the way for an uptick in new deals and investments for SoftBank.

Founder Masayoshi Son, who recently expressed plans to shift the company to “offense mode” amid advancements in artificial intelligence (AI), has been active in diversifying SoftBank’s investments. The conglomerate has ventured into creating a joint venture for automated warehouses and has invested in insurance tech company Tractable.

Market analysts are also enthusiastic about Arm’s growth prospects, particularly in data centers and the automotive sector. The growing focus on AI investment has already driven the market capitalization of chipmaker Nvidia above $1 trillion. Given the elevated valuations of industry peers, Paul Golding, an analyst at Macquarie, sees a potential upside of $31.4 billion for Arm from its current book value.

With SoftBank’s strategic reinvestment mandate for Arm to explore new markets, the chip designer is primed to reap the rewards of its previous investments. Rolf Bulk of New Street Research highlighted Arm’s promising position, noting that the company is entering a phase where it can capitalize on its previous initiatives.

In conclusion, SoftBank’s anticipated return to profitability and the revitalization of its Vision Fund’s tech stocks underscore the conglomerate’s resilience and ability to adapt to evolving market conditions. As the tech landscape continues to evolve, the positive indicators from SoftBank’s earnings report could signal a turning point for the company and its investments in the tech sector.