The SoftBank Group (OTC:SFTBY) has greatly contributed to financing the AI revolution. To further establish its position in the AI sector, the company plans to use its stake in OpenAI as collateral to service a debt.

The proposed margin loan would allow SoftBank to raise fresh capital for data centers, robotics, and broader AI infrastructure. However, lenders and credit rating agencies raise concerns about valuation, leverage, and execution risk of the company’s latest effort to borrow money backed by its holdings in OpenAI.

Key Takeaways

  • SoftBank is leveraging its OpenAI stake to finance Stargate and other AI projects, enabling it to raise capital without selling assets.
  • Lenders remain cautious because OpenAI is a private company, making its valuation difficult to verify and its shares harder to liquidate in the event of a default.
  • The success of SoftBank’s strategy depends on sustained AI growth, as weaker demand, project delays, or lower OpenAI revenue could make it more difficult to fund Stargate.

Why SoftBank Needs to Borrow

SoftBank has committed over $60 billion to OpenAI through multiple funding rounds. For instance, the group completed the first tranche of a previously announced $30 billion follow-on investment in April.

In addition, SoftBank is co-funding Stargate, the AI infrastructure initiative launched alongside OpenAI and Oracle (NYSE:ORCL). The project aims to invest up to $500 billion over several years to build advanced AI data center infrastructure across the United States.

To fund these ambitions without liquidating assets, the company secured a $40 billion bridge loan and expanded its margin loan backed by Arm Holdings stake to $20 billion.

SoftBank has also raised $3.6 billion through a bond offering, with the ten-year dollar tranche carrying a coupon of 8.5%, the highest the group has ever issued on such a security. 

The strategy reflects founder Masayoshi Son’s deliberate choice to borrow against appreciating assets rather than sell them.

Why Lenders Are Hesitating

Unlike publicly traded stocks, OpenAI shares do not have a continuously updated market price, daily trading volume, and standard market reference for a credit committee to use.

For banks and private credit funds, this creates uncertainty around collateral quality. If OpenAI’s valuation changes sharply or if liquidity remains limited before a potential IPO, recovering value from pledged shares could become complicated.

SoftBank’s debt profile is also drawing attention. The company has increased its exposure to AI investments over the past year, tying a growing portion of its future performance to OpenAI and related infrastructure projects. Credit analysts have already raised concerns about liquidity and leverage as the company continues expanding its borrowing.

Despite recent funding rounds attracted by OpenAI, private valuations and liquidation values are not the same thing. If SoftBank were to default, lenders would hold shares they cannot easily sell in a company priced at a revenue multiple exceeding 35 times.

What This Means for Stargate

While the Stargate project remains one of the largest AI infrastructure initiatives, reports have indicated that some planned expansions have faced delays and financing-related complications. 

Earlier this year, OpenAI and Oracle reportedly stepped back from plans to expand the Abilene facility’s capacity from 1.2 gigawatts to 2 gigawatts. Other reports have suggested disagreements among key stakeholders regarding control, development priorities, and funding responsibilities for certain Stargate facilities.

SoftBank relies on continued growth in AI demand to raise capital to fund Stargate’s data center expansion. As Stargate builds more facilities, demand for chips designed by Arm, a company largely owned by SoftBank, could increase. Higher Arm revenue would strengthen SoftBank’s financial position and make it easier to borrow more money for future projects.

If demand slows or cheaper open-source AI models reduce OpenAI’s revenue, the entire cycle could weaken, making it harder for SoftBank to finance its AI investments.

How the Market is Reacting

The market is sending mixed signals about SoftBank’s AI-driven strategy. 

Following news of the proposed margin loan backed by OpenAI shares, the cost of insuring SoftBank’s debt against default increased, with credit default swaps rising to around 360 basis points, near their highest level in a year. This suggests that debt investors are becoming more cautious about the company’s growing leverage and reliance on a relatively illiquid private asset. 

Furthermore, SoftBank’s recent stock surge has surpassed Toyota Motor’s (TYO:7203) 23-year reign as Japan’s most valuable publicly traded company. Stock investors are focused on the potential upside from SoftBank’s large bets on AI. In contrast,  bond investors are more concerned about the financial risks associated with borrowing against a privately held company whose valuation cannot be independently verified through daily market trading.

Bottom Line

By borrowing against its OpenAI stake, SoftBank is doubling down on its belief that AI will drive the next era of technological growth. However, lenders’ concerns suggest that even the most promising AI assets are not immune to traditional financing risks. As Stargate moves forward, SoftBank’s ability to balance aggressive expansion with financial discipline may prove just as important as the success of the AI projects it is funding.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.