Not so long ago, things looked bleak for SoftBank, the investment holding company headed by eclectic and controversial tech mogul Masayoshi Son. The Vision Fund, SoftBank’s venture arm, posted a $6.2 billion loss in Q2 2023, tied to WeWork and other unfortunate bets.
The Turning Point
However, thanks in no small part to chip design house Arm, SoftBank’s fortunes appear to be turning around. While consensus remains mixed on the Vision Fund’s long-term prospects, it’s on the upswing for now – and what an upswing it is.
Arm’s Explosive Growth
SoftBank took Arm public in September and still owns about 930 million shares, or 90%, of the chip company’s stock. Arm had a blockbuster quarter, blowing past analysts’ expectations for both revenue and earnings. The company reported adjusted earnings per share of 29 cents, topping the average analyst estimate of 25 cents, according to LSEG (via CNBC), while the company’s revenue rose 14% to $824 million, beating the $761 million average estimate.
AI Boom Fuels Arm’s Success
Arm projects revenue growth into the next quarter will be even stronger: 38%. Investors rewarded Arm’s performance, driving the company’s stock price up as high as 57.4% on Wednesday. The chip company added about $38 billion to its market cap, more than $34 billion of which accrued to SoftBank.
The AI Boom
AI has been the primary driver behind Arm’s recent business. Arm, based in Cambridge, makes most of its money licensing the chips it designs to customers and charging royalties for each chip sold that uses its technologies. Arm’s bread-and-butter work remains mobile chips for devices like smartphones, tablets, and smartwatches; 35% of overall units shipped this quarter were smartphone-bound, according to Arm finance chief Jason Child.
However, an increasing share of the billions of chips Arm’s customers produce each quarter is hardware designed to accelerate AI workloads. Both Microsoft and Amazon, among others, are deploying custom-designed Arm chips to run AI models. So are countless startups in the expanding market for tailored AI chips.
AI-Chip Sales Booming
While the bulk of Arm’s AI chip sales are indirect at present, often paired with GPUs in data centers, the company expects direct sales to increase as consumers buy new laptops and other devices with chip-accelerated AI features. In another boon for Arm, AI-supporting chips will command higher royalty revenues.
Arm Charges Higher Royalties
Arm charges roughly double the royalty rate for its latest processor architecture (v9) versus the previous generation. This is good news for SoftBank, which still owns a significant portion of Arm’s stock.
SoftBank’s Earnings Boosted by Arm
Buoyed by Arm’s performance, SoftBank’s earnings have been boosted significantly. The company reported a surprise profit in the latest quarter, thanks to the strong performance of its stake in Arm. This is a welcome respite for SoftBank investors, who had been concerned about the company’s prospects after the Vision Fund posted a large loss.
Conclusion
SoftBank’s fortunes appear to be turning around, thanks to the explosive growth of Arm. The chip design house has performed exceptionally well, with its stock price soaring and revenue rising significantly. As AI continues to drive demand for chip designs, SoftBank investors can expect more good news from the company in the coming quarters.
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