SoftBank credit default swaps hit 4-year high as AI profitability concerns mount
SoftBank Group’s five-year credit default swap spread climbed to a four-year high as investors grew increasingly concerned about the profitability of artificial intelligence investments. Rising borrowing costs, questions over returns from its Open...
By Anupam Nagar, ETMarkets.com |
Reuters
The five-year credit default swap (CDS) spread for SoftBank widened 22 basis points to 466 basis points.
The cost of insuring against a potential default by Japanese technology investor SoftBank Group surged to its highest level in four years on Friday, as growing concerns over the profitability of artificial intelligence investments rattled global financial markets, Reuters reported.
The five-year credit default swap (CDS) spread for SoftBank widened 22 basis points to 466 basis points, its highest level since October 2022, according to Markit data cited by Reuters.
SoftBank has emerged as a key indicator of investor sentiment towards the AI investment boom, given its $64.6 billion investment in frontier AI model developer OpenAI and its 90% stake in chip designer Arm Holdings.
Read more: Japan's Nikkei slumps 5.5% as market rout deepens on AI worries
Investors have stepped up scrutiny of the Japanese conglomerate's financial position this year as it has increased borrowing at record yields to finance its investment in OpenAI. Concerns over the returns from these investments have also intensified after OpenAI pushed back its planned initial public offering to 2027.
Adding to the uncertainty, sweeping Democratic Party victories in this week's US midterm elections have fuelled concerns that the pace of AI infrastructure development could slow. The resulting uncertainty has contributed to a broader increase in credit default swap spreads among companies that have borrowed heavily to finance the AI infrastructure buildout, Reuters reported.
Read more: AI meltdown: Kospi crashes 9%, hits 9-month low as Wall Street bloodbath after midterm elections spills to Asia; circuit breaker triggered
Around one-third of US data centre capacity could face risks because several planned facilities are located in states where governors may slow development, Rolf Bulk, head of semiconductors and infrastructure at Futurum Group, wrote in a research report on Thursday, according to Reuters.
The developments have intensified concerns over the financing risks associated with the AI boom, with investors increasingly questioning whether massive capital expenditure on AI infrastructure will generate adequate returns.
(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)
The five-year credit default swap (CDS) spread for SoftBank widened 22 basis points to 466 basis points, its highest level since October 2022, according to Markit data cited by Reuters.
SoftBank has emerged as a key indicator of investor sentiment towards the AI investment boom, given its $64.6 billion investment in frontier AI model developer OpenAI and its 90% stake in chip designer Arm Holdings.
Read more: Japan's Nikkei slumps 5.5% as market rout deepens on AI worries
Investors have stepped up scrutiny of the Japanese conglomerate's financial position this year as it has increased borrowing at record yields to finance its investment in OpenAI. Concerns over the returns from these investments have also intensified after OpenAI pushed back its planned initial public offering to 2027.
Adding to the uncertainty, sweeping Democratic Party victories in this week's US midterm elections have fuelled concerns that the pace of AI infrastructure development could slow. The resulting uncertainty has contributed to a broader increase in credit default swap spreads among companies that have borrowed heavily to finance the AI infrastructure buildout, Reuters reported.
ADVERTISEMENT
Read more: AI meltdown: Kospi crashes 9%, hits 9-month low as Wall Street bloodbath after midterm elections spills to Asia; circuit breaker triggered
Around one-third of US data centre capacity could face risks because several planned facilities are located in states where governors may slow development, Rolf Bulk, head of semiconductors and infrastructure at Futurum Group, wrote in a research report on Thursday, according to Reuters.
The developments have intensified concerns over the financing risks associated with the AI boom, with investors increasingly questioning whether massive capital expenditure on AI infrastructure will generate adequate returns.
(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)
Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
Bookmark or read stories offline -
Download ET Markets APP
Download ET Markets APP
ADVERTISEMENT
