SoftBank's AI Pivot Blossoms: Arm Strength and Vision Fund Gains Signal Buying Opportunity

SoftBank Corp. reported a robust Q2 FY2024 earnings beat, driven by Arm Holdings' post-IPO surge and a dramatic turnaround in its Vision Fund portfolio. This confluence of events underscores a strategic realignment toward artificial intelligence (AI) infrastructure, positioning SoftBank as a compelling investment in an era of tech sector transformation.

Arm: The AI Engine Behind SoftBank's Momentum
Arm Holdings delivered a standout quarter, reporting $844 million in revenue—a 5% year-over-year increase—driven by soaring adoption of its energy-efficient chips. Royalty revenue jumped 23% to $514 million, fueled by the widespread deployment of Armv9 architecture, which now accounts for 25% of its royalties compared to just 10% a year ago. This reflects the global shift toward AI-ready devices, as Arm's IP underpins AI chips from Google (Axion), Microsoft (Azure Cobalt), and MediaTek's Dimensity series.

The partnership with Meta, optimizing Llama 3.2 for Arm CPUs via KleidiAI libraries, highlights the company's strategic edge in the AI ecosystem. These collaborations have propelled Arm's Compute Subsystem (CSS) licensee count to double this fiscal year, a clear sign of industry demand. While short-term guidance for Q3 revenue ($720–800 million) caused a temporary dip in shares, the long-term narrative remains bullish: Arm aims to deploy 100 billion AI-ready devices by year-end 2025.

SoftBank's stock has already risen ~50% year-to-date, reflecting investor optimism. However, the company's valuation still understates Arm's true worth. Analysts estimate Arm's pro-forma net asset value (NAV) contribution to SoftBank rose to ¥32 trillion by Q2, up from ¥29 trillion in June 2023—a 10%+ uplift. This suggests significant upside as markets recognize Arm's role in the $800 billion AI infrastructure boom.

Vision Fund: A Portfolio Rebalance for the AI Age
The Vision Fund segment's 373.1 billion yen gain reversed its prior-quarter loss, thanks to soaring valuations in key investments like Coupang and Didi Global. Yet the real story lies in strategic exits and repositioning. SoftBank's Vision Fund 1 now focuses on AI-centric bets, such as its $500 million stake in OpenAI's $6.6 billion funding round—a move aligning with CEO Masayoshi Son's 10-year vision for artificial general intelligence.

While Vision Fund 2 faced losses from AutoStore and Symbotic, CFO Yoshimitsu Goto emphasized “selective reallocation” toward AI leaders. The $1.28 trillion gain from Alibaba and T-Mobile sales also underscores SoftBank's capital discipline. With $153.8 billion in buybacks completed this quarter—part of a $500 billion plan—SoftBank is aggressively reducing shares while building AI infrastructure.

The Investment Case: Buy the AI Infrastructure Play
SoftBank's dual engines—Arm's chip dominance and Vision Fund's AI pivots—create a compelling value proposition. At current levels, the stock trades at 10.2x forward EV/EBITDA, below its five-year average of 12.5x. Meanwhile, Arm's AI revenue streams (now 30% of total) are still underappreciated, with its 460-billion-parameter LLM and GPU investments (including NVIDIA's Blackwell) positioning it as a critical supplier to cloud giants.

Risks remain: yen strength could pressure near-term earnings, and some Vision Fund bets (e.g., Symbotic) may underperform. Yet the AI tailwinds and SoftBank's aggressive capital returns (including a 2.5% dividend yield) outweigh these concerns.

Conclusion
SoftBank's Q2 results mark a pivotal shift: from a volatile venture capital player to a strategic AI infrastructure leader. Arm's post-IPO performance, coupled with Vision Fund's focus on OpenAI and other AI titans, suggests this is a stock poised to outperform in 2025 and beyond. Investors seeking exposure to the AI revolution should seriously consider adding SoftBank to their portfolios.

Data Source: Company Earnings Reports & Consensus Estimates