What's going on?
SoftBank, the Japanese telecom and tech conglomerate, has quietly bought a $4 billion stake in US chipmaker Nvidia (almost 5% of the company) (tweet this), according to Bloomberg – and the move has something to do with its massive new tech investment fund!
What does this mean?
Nvidia makes computer chips that are used to process graphics (think: computer games), but its chips have also become integral components for artificial intelligence (AI) software. SoftBank is both a major player in Japan’s telecom market (running things like traditional phone lines) and has a strong track record of investing in burgeoning tech companies – it was an early investor in Alibaba and Supercell, for example. With the backing of Saudi Arabia, Apple and others, SoftBank has recently launched a $93 billion fund that will invest in tech companies (called the SoftBank Vision Fund). That new fund, which will be separate from SoftBank itself, will have the right to buy at least part of SoftBank’s stake in Nvidia.
Why should I care?
The bigger picture: This is largely about AI and the Internet Of Things (IoT).
Last year, SoftBank spent £24 billion to acquire UK chipmaker Arm Holdings with the aim of using Arm’s technology in chips for IoT products (think: smart heating systems). Nvidia is a somewhat similar type of investment. Not all of SoftBank’s Vision Fund’s investments will be in these areas, but it’s clearly making a big bet on them.
For markets: SoftBank is using debt to fund its acquisitions – which increases the risk for its shareholders.
SoftBank will almost certainly keep a portion of the investments it’s made for itself. If the investments perform well, its shareholders will benefit. However, SoftBank has a lot of debt. If SoftBank’s investments aren’t as savvy as they have been previously, all that debt will work against SoftBank’s shareholders (as debt investors have the right to be paid back before any profits get paid out to shareholders).