SoftBank Group’s sale of $5.8 billion worth of Nvidia shares caused a ripple effect in global stock markets on Tuesday. This move fueled fears that the AI craze has reached its peak and is now entering a cooling-off period.
The Japanese tech giant announced in October that it sold 32.1 million shares of Nvidia to finance CEO Masayoshi Son’s strategy of “investing entirely in artificial intelligence.” The proceeds will be used for the $500 billion “Stargate” project, which aims to grow US data center capacity, and for up to $40 billion in funding committed to OpenAI.
However, the timing of the sale deepened some investors’ doubts about the overvaluations in the AI sector. Nvidia shares fell more than 2% in early trading, dragging the S&P 500 index down as well. On the other hand, CoreWeave’s downward revision of its revenue forecast due to a contract delay has increased anxiety in AI-focused stocks.
In recent weeks, warnings from the CEOs of Morgan Stanley and Goldman Sachs about possible market corrections, and the short positions opened by renowned investor Michael Burry against Nvidia and Palantir, have further fueled the “AI bubble” discussions.
According to analysts, Son missed out on a $100 billion gain by selling Nvidia early in 2019. This latest sale may indicate that the rapidly rising Nvidia valuation has now reached saturation.
“Son’s luck with the timing hasn’t been good. This just seems like a move to redirect resources to different investments,” said C. J. Muse of Cantor Fitzgerald.Focus on OpenAI and New Capital Move
In addition to the Nvidia sale, SoftBank sold $9.2 billion worth of T-Mobile shares, providing Son with a massive capital boost to expand its influence in the AI sector.
According to Michael Ashley Schulman of Running Point Capital, “By now converting to cash, OpenAI is securing capital that it can double in on massive projects like Oracle and Stargate.” However, SoftBank’s growing reliance on OpenAI is seen as risky due to the significant losses the company has suffered in its past Vision Fund investments. While the company’s shares have more than doubled this year, its valuation is increasingly pegged to its connection with OpenAI. According to Reuters, OpenAI could consider a $1 trillion IPO within the next year, which could represent a massive gain for investors like Microsoft and SoftBank. The company’s rising value also doubled SoftBank’s second-quarter net profit.However, OpenAI has not presented a clear plan on how it will finance its approximately $1.4 trillion worth of infrastructure projects. “The Vision Fund’s complicated history adds a high-risk poker feel to this sale,” Schulman added.
