SoftBank credit risk hits four-year high on AI profitability fears
The cost of insuring against a default for SoftBank Group rose to its highest since October 2022 as AI profitability concerns roiled markets. The 5-year credit default swap spread climbed 22 basis points to 466 bps. Investors have increased scrutiny as SoftBank took on more debt to fund its US$64.6
The cost of insuring against a default for technology investor SoftBank Group jumped to its highest in four years on Friday as worries about artificial intelligence (AI) profitability roiled the world's financial markets, according to data from Markit.
The 5-year credit default swap spread for SoftBank rose 22 basis points to 466 basis points, the widest since October 2022.
SoftBank is seen as a bellwether for the prospects of AI investment because of its US$64.6 billion (HK$503.88 billion) investment in frontier model developer OpenAI and its 90 per cent stake in chip designer Arm.
Investors have increased their scrutiny of SoftBank's finances this year as it has taken on more debt at record yields to fund its OpenAI stake, while prospects for a return on investment have been pushed back by OpenAI delaying its public offering to 2027.
The Democratic Party's sweeping wins at this week's midterm elections in the United States have sparked fears of a slowdown in the pace of AI infrastructure development, adding to a rise in the credit default spreads of firms that have taken on debt to lead the buildout, the report said.
Rolf Bulk, head of semiconductors and infrastructure at the Futurum Group, wrote in a research report on Thursday that the midterm election results have put one-third of US data centre capacity at risk, as the planned data centres sit in states where governors may slow development.