SoftBank Group Corp. has emerged as a surprising focal point in Japan’s equity benchmarks, compelling even the staunchest skeptics to reconsider their stance on the stock. Since the start of the fiscal year in April, SoftBank’s shares have skyrocketed by an impressive 146%, placing it among the top performers on the Topix index. Over the same period, the company’s representation within the benchmark has doubled to 2%, positioning it just behind major players like Toyota Motor Corp. and Sony Group Corp.
Despite longstanding reservations regarding SoftBank’s volatility and its intricate business operations, fund managers acknowledge that holding the stock has become essential for outpacing the market. Yoshiki Nagata, chief investment officer at enTorch Capital Partners, stated, “A lot of institutional investors are now agonizing over how to deal with SoftBank. If you don’t own this particular stock, all the effort to pick other good investments goes to waste.”
Recent data reveals that SoftBank contributed nearly 10% to the increase in the Topix’s market capitalization since March, with its overall value rising by 15.9 trillion yen. In contrast, the next largest contributors, Advantest Corp. and Mitsubishi Heavy Industries Ltd., accounted for less than half of that growth.
The ongoing investments in artificial intelligence (AI) also play a crucial role in SoftBank’s valuation. Hiroaki Tomori, an executive fund manager at Mitsubishi UFJ Asset Management, emphasized the significance of SoftBank’s stake in OpenAI, noting its positive impact on tech shares in the U.S., such as Broadcom Inc. and Oracle Corp. He commented, “OpenAI’s growth is staggering; the use of AI is becoming ubiquitous. We should see a sign of confidence behind the big orders OpenAI is making.”
Yet, investors should remain cautious. SoftBank shares traditionally perform well in bullish markets but are susceptible to downturns. With a beta of 1.515—indicating it moves 1.5 times more than the overall market—SoftBank retains its reputation for volatility. According to Bloomberg data, SoftBank shares currently trade at roughly a 20% discount to their net asset value, the narrowest margin in years, prompting speculation that any weakness in investment could halt the recent rally.
On the upside, SoftBank’s recent aggressive investments, including a significant $30 billion commitment to the Stargate initiative in collaboration with OpenAI and a surprise $2 billion investment in Intel Corp., are fostering a sense of optimism among investors. Analyst Daisaku Masuno at Nomura Securities Co. predicts that the discount will vanish as improvements in the Vision Fund’s investments mitigate risks, making progress on SoftBank’s AI chip initiative more probable. He has already raised his target price for SoftBank shares twice within less than a month, anticipating an eventual 0% NAV discount.
As some investors work to adjust their underweight positions in SoftBank to align with market benchmarks, the potential for acceleration in share gains remains high. Nagata noted, “When a share with a big weight like SoftBank keeps rising, it is hard to close your underweight position. This is a structural problem with benchmark-linked investment. We could see a self-feeding loop of additional buying inviting more buying.”
