Sun Zhengyi launched a massive counterattack on investment | Epidemic | Justice

Author | First Finance and Economics Li Ailin

"We will soon launch a counterattack." After seven months of absence, Sun Zhengyi, the founder of SoftBank Group, reappeared at the company's financial report meeting in June. This time, he said, "I hope SoftBank can lead the artificial intelligence revolution."

At the end of last year, Sun Zhengyi briefly retreated behind the scenes, and SoftBank also entered a "hibernation" mode.

In just half a year, it has already changed the world. Over the past six months, Sun Zhengyi has been exhausted from tidying up the aftermath left by the pandemic for three years while witnessing the global AI race explode. Can this tech industry's "king maker" return to the battlefield and create new glory?

Sun Zhengyi appeared at SoftBank's annual shareholder meeting in June

Scraping bone to treat injuries

In November 2022, due to the huge losses caused by the vision fund under the group to SoftBank, Sun Zhengyi felt ashamed to face shareholders and solemnly announced that he would no longer attend SoftBank's financial report meetings and would transfer the daily management work of the group to CFO Yoshimitsu Goto.

Before bidding farewell to investors, he admitted, "From the current situation, almost all of our investments, whether in the primary or secondary markets, have not performed well. Listed and unlisted companies are close to being completely wiped out, and Vision Fund has also suffered a significant blow."

In the same month as Sun Zhengyi announced his retirement, the AI chatbot ChatGPT was born, igniting global entrepreneurial and investment enthusiasm, and to this day, its popularity remains high. During this period, various funds rushed in, concept stocks continued to soar, and "AI+" projects blossomed everywhere.

According to the latest data from market research firm PitchBook, SoftBank has only invested in one of the 26 generative AI unicorns globally - a startup valued at over $1 billion - while its arch rivals Tiger Global Fund, hedge fund Coat, and venture capital firm LightSpeed Venture have all invested in multiple unicorn companies in this field. As the world's largest technology investment company, SoftBank clearly lags behind others.

"Wework's investment failure and the three-year heavy impact of the epidemic on SoftBank's financial performance have greatly damaged SoftBank's vitality. Sun Zhengyi has been healing his wounds, clearing existing assets, and can be said to be powerless in the latest tracks such as AI." Liu Bin, founder and CEO of Shanghai Dingchuanghui Maker Space Management Co., Ltd., said in an interview with First Financial News.

The joint office space Wework is considered the biggest failure of Sun Zhengyi's investment career, as the company's valuation plummeted significantly. Vision Fund recorded a loss of $8.9 billion in the third quarter of 2019, dragging SoftBank to its first quarterly loss in 14 years. Investors who have followed Sun Zhengyi for many years publicly questioned his high-risk strategy of burning money to invest in high valuation startups.

A wave has not yet subsided, and another wave has emerged. With the sudden outbreak of the epidemic, global inflation, interest rate hikes, and economic downturn, negative factors have taken turns. From fiscal year 2019 to fiscal year 2022, SoftBank only achieved an investment profit of 7.5 trillion yen in fiscal year 2020. In fiscal years 2019, 2021, and 2022, SoftBank recorded investment losses of 1.4 trillion yen, 3.4 trillion yen, and 835 billion yen, respectively, equivalent to approximately 70 billion yen, 170 billion yen, and 42 billion yen, respectively.

SoftBank unfortunately missed the AI trend. The transaction of Nvidia alone has caused it to lose countless small goals.

SoftBank invested approximately $4 billion in chip giant Nvidia in May 2017 and became the company's fourth largest shareholder with a 4.9% stake. At that time, Nvidia's stock price was trading above $30.

However, in January 2019, one and a half years after holding the shares, SoftBank sold all of its shares in Nvidia. Unexpectedly, the chip company's stock price continued to rise, especially benefiting from the ChatGPT boom at the end of last year. The stock price began a frenzy and has surged nearly twice since the beginning of the year. As of the time of the reporter's article, Nvidia's stock price was $424.13, with a market value of $1 trillion. If Sun Zhengyi did not leave midway, his holdings of Nvidia stocks would be worth $49 billion, which is 12 times his investment cost. The estimated Nvidia stock price here is calculated based on pre dividend basis, which involves repairing the stock price and trading volume with interest rates. A trend chart is drawn based on the actual rise and fall of the stock to eliminate price fluctuations caused by ex dividend and maintain the continuity of the stock price trend.

Nvidia stock price trend chart

Liu Bin told First Financial that not only that, but in the asset sales made by SoftBank's vision for survival, there are also high-quality assets, including Alibaba stocks, and British chip manufacturer ARM almost encountered a sell out.

Returning to the battlefield

Sun Zhengyi was born in Japan in 1957 and founded SoftBank Group in 1981. He is over 65 years old.

On June 21st, Sun Zhengyi officially made a comeback. He stated at the SoftBank shareholder meeting that he is extremely excited about the artificial intelligence revolution and future AI investments, and does not want to retire for the time being. At present, SoftBank's free cash flow exceeds 5 trillion yen, and its investment strategy will shift from defensive to aggressive.

He also claims to be a heavy user of ChatGPT and maintains frequent communication with OpenAI CEO Ultraman.

SoftBank stated that nearly 90% of companies supported by the Vision Fund use artificial intelligence in their daily operations. Since 2018, the fund has invested over $140 billion in over 400 startups. Sun Zhengyi predicts that with the arrival of the wave of artificial intelligence, several of these companies will become big winners.

However, Liu Bin is not excited about this. He believes that after experiencing various setbacks before, Sun Zhengyi's investment style will tend to be cautious and pay more attention to liquidity, otherwise it is inevitable that he will be in danger. "The burden is the most fatal for investors. Once they have a halo, it becomes a burden. In addition, as they age and enter the countdown of their investment career, decision-making tends to be conservative, which is also a human issue."

Liu Bin also stated that Sun Zhengyi, who had started anew, had to cater to the tastes of his fellow investors in the second half to rebuild trust. These funds hoped to obtain stable returns and would not support investing in a project with no future realization.

"I don't think the success of ChatGPT means that the era of monetization has arrived yet. AI has not yet found very good monetization scenarios in the commercial and civilian fields, especially in the extensive consumer grade commercial and civilian markets. Sun Zhengyi may also realize that the road to true commercial monetization of AI is still very winding, and given SoftBank's current financial situation, it may not be able to support its sustained investment," said Liu Bin.

Liu Bin, founder of Shanghai Dingchuanghui Maker Space Management Co., Ltd., interviewed by First Financial News

Jedi counterattack

At present, SoftBank's big chip in the AI field is ARM, which was almost sold by Sun Zhengyi. In July 2016, Sun Zhengyi invested approximately $32 billion to acquire ARM, which was one of the largest acquisitions in the European technology industry at that time, indicating that Sun Zhengyi had already bet on the broad prospects of AI technology. In September 2020, due to difficulties in the Vision Fund investment portfolio, SoftBank and Nvidia reached an agreement to sell ARM to the latter for a maximum price of $40 billion. However, it faced opposition from many technology companies and strong concerns from regulatory agencies in the US, UK, and EU, leading to the final collapse of the deal. Since then, SoftBank has been seeking to push ARM for an initial public offering.

The latest update is that on April 29th, ARM officially submitted an F1 form to the US Securities and Exchange Commission, which involves the initial public offering of American Depositary Shares representing its common stock, but the issuance size and price range have not yet been determined. ARM emphasizes that the completion of the IPO will depend on market conditions and the completion of SEC review procedures.

Analysts predict that the aforementioned IPO will be launched in the coming months, with a valuation possibly exceeding $60 billion.

Sun Zhengyi has repeatedly emphasized in public that the listing of ARM may be the most noteworthy IPO project in the global semiconductor industry in recent years. He admitted that the Vision Fund has been consistently underperforming in recent years, which has prevented him from fully investing in the development of ARM.

Besides ARM, what other actions may Sun Zhengyi take? Liu Bin expects that Sun Zhengyi will focus on market hotspots, think about monetization paths, and seek opportunities in countries that dominate global economic development. "He will definitely pay attention to the layout of China and the United States in the field of innovation, and care about which industries the two countries focus more on in terms of investment direction and national development. This is something I think he will definitely pay attention to," Liu Bin said.