Feb 19, 2025

SoftBank Explores High-Stakes Financing for $500 Billion AI Expansion

SoftBank is betting big on AI with a $500 billion project—but its high-risk financing model raises major concerns. The project, which aims to revolutionize AI infrastructure through a network of advanced data centers, is still in its early financial planning stages, with SoftBank seeking additional investors to share the risk.

Masayoshi Son, the Japanese conglomerate’s founder, introduced the Stargate project last month alongside U.S. President Donald Trump, positioning it as a transformative effort to bolster AI capabilities. However, the challenge of securing sufficient capital looms large. According to sources familiar with the matter, SoftBank is considering a project financing model often used in large-scale infrastructure endeavors like oil pipelines and power plants. This approach would allow the company and its partners—OpenAI, Oracle Corp., and Abu Dhabi’s MGX—to contribute a modest 10% of the overall investment through equity while leveraging debt markets to cover the remainder.

A High-Leverage Investment Strategy

SoftBank has yet to finalize the structure of the financing, but potential models include a mix of common equity (10%), preferred equity and mezzanine debt (20%-40%), and senior debt (50%-70%). This high-leverage framework, while common in infrastructure financing, is relatively untested in AI-driven datacenter projects. The initial investment requirement stands at $100 billion, though SoftBank has not yet disclosed the specific sources for these funds.

The project’s rollout has already begun in Abilene, Texas, with additional locations under consideration across more than a dozen U.S. states. However, the financial viability of Stargate remains uncertain. AI infrastructure projects rely heavily on projected cash flows, and with the emergence of low-cost AI models such as those developed by Chinese startup DeepSeek, industry analysts are raising concerns about the long-term profitability of proprietary large-language models like those of OpenAI.

“SoftBank’s investment in OpenAI could total $15-$25 billion, but this strategy comes with significant risks,” Bloomberg Intelligence analysts Marvin Lo, Sharon Chen, and Chris Muckensturm wrote in a recent report. “The growing preference for open-source AI models could pressure returns and challenge the viability of Stargate’s financial structure.”

Softbank performance in the markets. Source: Yahoo Finance

The financing discussions for Stargate are still in flux, with SoftBank actively engaging potential institutional investors. OpenAI’s Chief Financial Officer, Sarah Friar, stated in a blog post that the companies are taking a “structured, phased approach to investment” and intend to bring in additional partners. Meanwhile, Masayoshi Son has been meeting with global industry leaders, including Japanese Prime Minister Shigeru Ishiba and Samsung Electronics Co. Chairman Jay Y. Lee, to garner support for the initiative.

The timing of SoftBank’s aggressive AI push coincides with increasing financial pressure on the company. SoftBank is expected to report a net loss of approximately ¥155 billion ($1 billion) for its fiscal third quarter, according to estimates compiled by Bloomberg. The Vision Fund, which houses SoftBank’s AI and tech investments, has also seen volatility, with public portfolio losses of around $700 million in the December quarter.

Complicating matters further, SoftBank’s portfolio includes several struggling startups, such as Indonesian agritech firm eFishery, which is facing potential liquidation and fraud allegations. Additionally, its stake in ByteDance Ltd., the parent company of TikTok, remains in limbo amid geopolitical tensions and the threat of a U.S. ban on the app.

Despite these uncertainties, SoftBank remains committed to executing what could be one of the largest AI infrastructure projects in history. SoftBank’s gamble could reshape AI infrastructure, but if investor confidence wavers, it risks becoming one of the most expensive missteps in tech history.

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