Behind the 'mountain of money' invested in OpenAI

OpenAI has just announced the completion of a record-breaking funding round worth $40 billion , bringing the company's valuation to $300 billion , nearly tripling its previous value. According to CNBC , this is the largest funding round in history for a privately held technology company.

This funding round was led by SoftBank with $30 billion , along with participation from Microsoft and other investors. However, one condition was set: SoftBank could reduce its investment if OpenAI does not successfully transform into a for-profit company by the end of this year.

Familiar tools

According to the WSJ , SoftBank founder Masayoshi Son is using a familiar tool to finance the massive $40 billion investment in OpenAI: debt.

The Wall Street Journal reported that billionaire Masayoshi Son's SoftBank Group continued to borrow money to invest in OpenAI. Photo: Reuters.

Specifically, SoftBank stated that the first $10 billion of the deal is expected to be financed through loans from Japan's Mizuho Bank and other credit institutions.

Meanwhile, the remaining $30 billion will be raised in early 2026. If all of that money is invested, it would also be the largest investment ever in a startup.

As the entity responsible for raising capital for the Stargate mega-project, SoftBank can utilize financial instruments such as preferred equity, mezzanine debt, and senior bank loans to secure sufficient funds.

The ratio of preferred stock to debt will depend on additional investors participating in each specific project, which could focus on semiconductor chips or AI servers.

With the project financing model, one scenario being considered could be 10% common equity, 20% preferred equity and subordinated debt, and the remaining 70% from bank loans. Another model could be 10% common equity, 40% preferred equity and subordinated debt, and the remaining 50% from bank loans.

Currently, SoftBank is projected to report a loss of approximately 155 billion yen (equivalent to $1 billion ) in the third quarter of fiscal year 2024-2025, according to the average estimate of three analysts surveyed by Bloomberg .

SoftBank's Vision Fund was also affected. Its public investment portfolio lost approximately $700 million between October and December 2024 due to the decline in the share prices of Coupang and Didi.

A risky gamble

Coupled with SoftBank's commitment to leading the $100 billion Stargate cloud computing initiative with OpenAI, this investment marks another massive gamble on this artificial intelligence startup. With these two investments, SoftBank will lose billions of dollars over the next several years.

SoftBank's ambition is for OpenAI to emerge as a leader in the race to popularize artificial intelligence in society and commerce. Photo: Bloomberg.

In turn, SoftBank's ambition is for OpenAI to emerge as a leader in the race to popularize artificial intelligence in society and commerce, a market that many believe could be worth trillions of dollars annually.

However, the problem is that Masayoshi Son's conglomerate is taking on significant risks to acquire a stake in OpenAI. According to the WSJ , rating agency S&P Global stated on April 1st that "SoftBank's financial situation is likely to worsen" due to its investment in OpenAI, adding that plans to increase debt could lead the agency to consider downgrading SoftBank's rating.

S&P Global's concerns stem from the fact that no leading AI-generating startup has demonstrated the ability to operate profitably. In reality, the sector continues to pour tens of billions of dollars into data centers based on assumptions about a future where AI rapidly spreads globally.

Furthermore, pioneering technology companies often stumble. SoftBank understands this better than anyone, having bet on the dot-com bubble with the ambition that Yahoo would dominate the search engine field.

In fact, borrowing is a common feature in Son's risky strategies. Previously, the CEO borrowed heavily for the successful acquisitions of Vodafone Japan and chip design company Arm.

SoftBank will face significant financial pressure if OpenAI fails. Photo: Fast Company.

However, after pouring tens of billions of dollars into startups just before their valuations plummeted in 2021, Son has repeatedly stated that SoftBank will maintain a defensive stance.

Now, having shifted to an "offensive" stance, SoftBank has increased its spending, including the $6.5 billion acquisition of chip startup Ampere.

To reassure worried investors, the conglomerate has committed to borrowing no more than 25% of the value of all its holdings. This means SoftBank will likely need to sell other parts of its empire to pay for the remainder of the deal with OpenAI.

Source: https://znews.vn/dang-sau-nui-tien-dau-tu-vao-openai-post1542592.html