SoftBank credit risk jumps to 4-year high as AI fears roil market
- The 5-year credit default swap spread for SoftBank rose 22 basis points to 466 bps, according to Markit data, the widest since October 2022
SoftBank's default insurance costs surged to a four-year high amid AI profitability concerns, driven by its large investments in OpenAI and Arm, and fears of US AI infrastructure slowdown.
- SoftBank's credit default swap spread reaching a four-year high.
- Investor concerns over AI profitability and SoftBank's significant investments.
- US midterm election results impacting AI infrastructure development.
SINGAPORE/TOKYO: The cost of insuring against a default for tech investor SoftBank Group jumped to its highest in four years on Friday as worries about AI profitability roiled the world’s financial markets.
The 5-year credit default swap spread for SoftBank rose 22 basis points to 466 bps, according to Markit data, the widest since October 2022.
SoftBank is seen as a bellwether for the prospects of AI investment due to its $64.6 billion investment in frontier model developer OpenAI and 90% stake in chip designer Arm.
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Investors have increased their scrutiny of SoftBank 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 US 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 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, Rolf Bulk, head of semiconductors and infrastructure at the Futurum Group, wrote in a research report on Thursday.
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