According to reports, SoftBank Group Corp (SFTBY.US) is seeking to raise up to $100 billion from Gulf region investors to expand its bets on artificial intelligence (AI). This would rank among the company's largest AI fundraising efforts to date.

Citing people familiar with the matter, the report said SoftBank founder Masayoshi Son has held preliminary talks with multiple institutions, including investors from the United Arab Emirates. The proceeds would be used to establish a fund that would acquire companies and improve their operations using AI and robotics technology. Roze, SoftBank's robotics and physical AI business, is expected to play a key role in this process. The sources also stressed that negotiations with Gulf investors are not guaranteed to succeed.

In recent years, Gulf states have been allocating substantial wealth to the AI sector in an effort to reduce their economies' dependence on energy. Abu Dhabi in particular has become one of the world's largest investors in AI through platforms such as its dedicated AI fund MGX and AI holding company G42. If the fundraising succeeds, it would provide Son with a new source of capital to increase his AI bets.

Notably, this is not the first time Son has sought large-scale financial support from the Gulf region. In 2017, the UAE sovereign wealth fund Mubadala and Saudi Arabia's Public Investment Fund (PIF) both participated in SoftBank's first Vision Fund, which reached $100 billion in size. As of the end of June this year, Vision Fund I had generated cumulative investment gains of approximately $29 billion. Vision Fund II, funded primarily by SoftBank's own capital and holding a stake in OpenAI, recorded gains of $20.5 billion.

Continued escalation of AI bets

SoftBank's most prominent AI investment is the $65 billion it has committed to OpenAI. Beyond its large-scale investment in OpenAI, SoftBank's AI-related moves include the $5.4 billion acquisition of ABB Ltd.'s industrial robotics business and the approximately $3 billion cash acquisition of data center-focused private equity firm DigitalBridge Group Inc.

For Son, his growing AI ambitions also include aggressive data center expansion in the United States and France. SoftBank's US subsidiary SB Energy Inc. is developing a total of 8.8 gigawatts of data center capacity across the United States, requiring an estimated $174 billion in capital expenditure. SoftBank has also announced plans to build a 5-gigawatt data center in France.

To support its growing AI ambitions, SoftBank has employed multiple financing methods, including: raising the size of a margin loan backed by shares of its chip unit Arm Holdings (ARM.US) by $5 billion to $25 billion; completing the largest junk bond issuance in history, raising more than $11 billion from investors at yields of up to 9.75%; and securing a $10 billion two-year loan from lenders including Apollo Global Management (APO.US), using its OpenAI shares as collateral.

Risks cannot be overlooked

However, as SoftBank's multi-billion-dollar AI projects continue to pile up and the revenue returns these projects may generate in the future remain largely uncertain, investors are growing increasingly concerned about this surge in spending. Against the backdrop of elevated global interest rates, the growing number of financing instruments also means SoftBank's balance sheet is more sensitive to interest rates, credit spreads, and changes in the valuation of its AI assets. It is understood that in mid-September, SoftBank's credit default swaps (CDS) hit a three-year high of about 360 basis points, significantly raising its debt insurance costs.

For SoftBank, another layer of pressure comes from OpenAI's delayed IPO. This means that after SoftBank invested heavily in OpenAI through large-scale financing, it may lack a clear public market exit channel in the short term, and the capital lock-up period could be further extended. If OpenAI goes public in the future, SoftBank's related equity stake would gain a more defined liquidity channel. But a delayed listing means SoftBank will need to bear financing costs for a longer period while waiting for its investment value to materialize.

Additionally, SoftBank's large bet on OpenAI means it is highly susceptible to spillover effects from OpenAI. According to reports, OpenAI disclosed to investors that as of the end of September, its annualized revenue was approximately $50 billion, lower than the roughly $70 billion widely circulated in the market. Following the news, SoftBank's stock price fell 5% in a single day. Although SoftBank shares are still up about 25% year-to-date, they have fallen more than 30% from their peak when the company briefly became Japan's most valuable company in June.

An Asia-based analyst warned that "knock-on effects... could deteriorate sharply in a short period of time," because a large portion of SoftBank's investments are directly or indirectly tied to OpenAI and the AI sector, and once OpenAI's valuation drops significantly, the spillover impact cannot be underestimated.