Is SoftBank Group (TSE:9984) Below Fair Value After OpenAI Funding Reports?

Reports that OpenAI plans to raise about $30b, with SoftBank Group (TSE:9984) among the investors it has approached, have brought SoftBank’s AI investments back into focus for people following the stock.

Over the past month, SoftBank Group’s share price has fallen 31.83%, including a 6.86% drop in the latest trading session. Investors are weighing the latest AI news against the company’s early repayment of €405.1m in 2.875% Senior Notes and other recent changes to its finances. This recent weakness contrasts with total shareholder returns of 188.09% over three years and 189.52% over five years. This means long-term investors have still made strong gains, even though the share price has recently lost momentum.

Compare how other AI-related investments are reacting to the same funding news by exploring our selected list of 55 AI infrastructure stocks, alongside SoftBank Group.

After its share price fell sharply, SoftBank Group is now trading well below both analysts’ price targets and one estimate of its underlying value. Does this lower price offer a chance to buy at a discount, or does it warn investors about the risks in the company’s AI-focused investments?

Most Popular View: 45% Undervalued

The most widely followed valuation view for SoftBank Group estimates its fair value at ¥7,782, well above its latest closing price of ¥4,305. This raises the question of whether its AI projects can justify the difference between the two prices.

SB Energy plans to list on Nasdaq. It has about 8.8 GW of contracted capacity for AI data centers and an estimated US$430b in future lease revenue that has not yet been earned. If the listing goes ahead, SoftBank Group could turn some of this built-in value into money or recognized gains. This could also increase its reported net asset value (NAV), which measures the value of its assets after subtracting its liabilities.

Find out why 23 investors believe SoftBank Group is 45% undervalued.

Result: Fair Value of ¥7,782 (UNDERVALUED)

However, the outlook for SoftBank Group could change quickly if it becomes harder to refinance its AI-related financial commitments, or if important initial public offerings (IPOs) and other events that could bring in cash are delayed again.

Learn about the main risks to this view of SoftBank Group.

Another View: SoftBank Group’s Cash Flows

The estimate that SoftBank Group is 45% undervalued depends on analysts’ price targets and earnings-based measures. But another approach gives a different answer. The SWS discounted cash flow (DCF) model, which estimates a company’s value using its expected future cash flows, suggests that SoftBank Group’s share price of ¥4,305 is higher than its estimated value of ¥2,493 per share. If cash generation is the main thing you care about, which estimate should you trust?

To learn more about the assumptions behind this cash flow estimate, see how the SWS DCF model calculates fair value.

Simply Wall St calculates a discounted cash flow (DCF) estimate for every stock in the world every day (see SoftBank Group as an example). It shows the full calculation. You can follow the results on your watchlist or in your portfolio and receive alerts when they change. You can also use the stock screener to find 14 high-quality stocks that may be undervalued. If you save a screener, you can receive alerts when new companies meet your chosen conditions, helping you spot possible investment opportunities.

Next Steps

SoftBank Group’s valuation presents a mixed picture, with both risks and possible benefits. Review the information yourself, including 4 key reasons to be positive and 4 important warning signs.

Looking for More Investment Ideas Beyond SoftBank Group?

If SoftBank Group has made you think more carefully about where money can work hardest, there are other opportunities to consider. Investments in different industries may offer more choices for your portfolio.

• Look for companies that may be priced below their worth by exploring a selected group that combines strong business quality with attractive prices: 14 high-quality stocks that may be undervalued.
• Explore companies that pay higher dividends and aim to keep those payments reliable by reviewing 29 companies with strong dividend records.
• Look for businesses with stronger finances and healthier fundamentals by exploring this list of companies with strong balance sheets and fundamentals (22 results).

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