SoftBank Group Corp. Q2 FY2027 earnings call

Strategic Vision and AI Focus:

• Management reaffirmed commitment to an 'All-in AI' strategy across four pillars: AI models (OpenAI), AI chips (Arm), AI infrastructure (data centers), and physical AI (robotics/drones).
• Emphasized that AI technology development is irreversible and positioned SoftBank to benefit from long-term productivity gains rather than short-term market fluctuations.

Operational Highlights - Arm:

• Arm’s CPU share among major hyperscalers exceeded 60% by end of 2026, up from 15% in 2024, driven by energy-efficient AGI CPUs suitable for data centers.
• Third-quarter guidance for Arm shows strong growth, with revenue expected at $1.54 billion (+24% YoY) and EPS above analyst consensus.

Operational Highlights - OpenAI:

• Completed a $30 billion follow-on investment in OpenAI, bringing total cumulative investment to $64.6 billion.
• ChatGPT weekly active users hit 1.2 billion; ARR reached $1 billion in August and ~$50 billion by September 2026.
• Enterprise revenue now accounts for 50% of total revenue, with Codex integration driving rapid adoption (40 million weekly active users in 8 months).

Operational Highlights - Data Center Infrastructure:

• Signed a 20-year lease with OpenAI for the PORTS-Pike Technology Campus in Ohio (8 GW IT capacity).
• Announced a joint venture in Malaysia with Grab and PETROS to build 5+ GW of AI compute capacity over the long term, with initial investment of $1.85 billion.
• Completed acquisition of DigitalBridge, adding expertise in digital infrastructure with $121 billion in assets under management.

Financial Discipline and Capital Management:

• Raised approximately JPY 9 trillion ($56.5 billion) in the second quarter, the largest financing quarter in company history.
• Repaid the $40 billion bridge facility ahead of schedule using proceeds from bond issuances and asset monetization.
• Maintained Loan-to-Value (LTV) ratio at 15.9% as of Q2, well below the 25% safety threshold, despite a decline in Net Asset Value (NAV) due to market conditions.

Physical AI Investments:

• Highlighted progress in autonomous mobility and robotics, including investments in Gravis Robotics (construction automation), AutoStore (warehouse automation, signed strategic agreement with Amazon), and Zipline (autonomous drone delivery, raised $1.5 billion at $21.5 billion valuation).

Arm: Revenue reached a record high, increasing 27% year-on-year. Fully diluted EPS also hit a record high with a 33% year-on-year increase. No specific revenue contribution percentage of total SoftBank Group was disclosed for this segment.

OpenAI Investment: Recognized as a key pillar with cumulative investment of $64.6 billion and approximately 13% ownership. While not a standalone operating segment with reported revenue in this context, it drove significant investment gains of JPY 1.7 trillion for the half-year (though impacted by broader market losses).

SB Energy/Data Center Infrastructure: Recorded a loss of approximately $3.7 billion related to power generation equipment procurement adjustments for AI data centers in the US. This is part of the broader infrastructure investments which include SB Energy's portfolio.

• Arm Q3 FY2027 Guidance: Revenue expected at $1.54 billion (range ±$50 million), representing 24% year-on-year growth. Fully diluted EPS guidance is also above analyst consensus.
• Long-term Outlook: Management expressed confidence in the mid-to-long-term positive outlook for AI infrastructure investments, noting that current project reviews and strategy revisions are aimed at optimizing future returns rather than indicating fundamental failure.
• No specific full-year consolidated financial guidance was provided in this transcript; focus remains on maintaining LTV below 25% and ensuring sufficient cash reserves.

• Market Volatility and NAV Decline: The company acknowledged significant declines in Net Asset Value (from JPY 59.8 trillion to JPY 44.7 trillion recently) due to global market shifts, particularly affecting holdings like Intel. However, LTV remains within safe limits.
• Equipment Procurement Losses: A $3.7 billion loss was recorded due to non-refundable advanced payments and contract modifications for US data center power equipment, reflecting risks in early-stage infrastructure procurement strategies.
• Regulatory and Political Risks: Potential impacts from US midterm elections and local opposition to data center construction were noted, though management stated existing projects remain on track. Concerns were also raised regarding potential regulatory hurdles for acquisitions like ABB Robotics in China.
• Credit and Counterparty Risk: Management addressed concerns about 'round-tripping' transactions in the AI supply chain, asserting that their equity-based approach and reliance on strong off-taker credit (e.g., NVIDIA, OpenAI) mitigate these risks.
• Derivative Losses: Recorded derivative losses linked to prepaid forward contracts backed by Intel shares following share price declines.

Q: M.J. Lee asked for details on the project profile review causing losses, specifically if the Ohio (PORTS-Pike) project is being downsized, and commented on rumors of SoftBank defaulting on turbine orders. / A: CFO Goto clarified that the Ohio project is not being downsized and is progressing well. The review pertains to a mid-to-long-term strategy adjustment for new AI data center equipment procurement, leading to a $3.7 billion loss from non-refundable payments and contract changes. He firmly denied any default on turbine orders, attributing such claims to misinformation.

Q: Yagi from Nikkei asked how the US midterm election results, which elected governors against data centers, would impact SB Energy’s projects, and if delays should be anticipated. / A: Goto stated that while political landscapes may introduce discussions, the projects themselves are already launched or scheduled. He emphasized that SoftBank focuses on building relationships with local communities to mitigate opposition and does not anticipate material delays to their specific pipeline based on election outcomes.

Q: Yamashita from Yomiuri Newspaper raised concerns about 'round-tripping' transactions in the AI supply chain (e.g., money circulating between NVIDIA, OpenAI, and SoftBank) as a systemic risk. / A: Goto distinguished between debt providers and equity providers. He argued that while round-tripping is a risk for lenders, SoftBank acts as an equity investor. The creditworthiness of the off-takers (hyperscalers) is robust, and since SoftBank is not providing the debt financing for these data centers, the structural risk to SoftBank is minimal.

Q: Masahiro Asamura asked if the declining share price and NAV force SoftBank into a defensive investment mode despite their long-term AI focus. / A: Goto acknowledged the need to balance 'gas and brake' in the short term to manage the LTV ratio below 25%. While immediate aggressive investing may be tempered by market conditions, he affirmed that preparations for mid-to-long-term AI investments continue, viewing current price declines as potential buying opportunities.