Hidden beneath the triumphant pronouncements of SoftBank Corp.'s Q4 2024 earnings call lies a fascinating, and potentially risky, bet. The telecom giant, fresh off an earnings beat and a year-early achievement of mobile revenue targets, is embarking on a massive investment spree in generative AI, pledging approximately ¥150 billion for FY 2024 alone. While CEO Miyakawa painted a picture of growth and dividends, a closer look reveals a strategic tightrope walk, balancing aggressive expansion with the pressure to maintain shareholder returns.

The ¥150 billion figure, substantial as it is, only tells part of the story. SoftBank's midterm management plan, unveiled amidst the AI frenzy, forecasts a total operating income of ¥970 billion for FY 2025. Strikingly, this target remains unchanged despite the newly announced AI investment, an investment that, according to CFO Fujihara, does not reflect potential government subsidies. This implies a critical assumption: SoftBank anticipates its core businesses, particularly mobile and enterprise, to generate sufficient growth to offset the initial AI investment drag and hit the pre-set ¥970 billion mark.

This is a bold gamble. While SoftBank exceeded its upwardly revised FY 2023 operating income target, reaching ¥876 billion, the inclusion of a one-time litigation gain suggests a recurring operating income closer to ¥862 billion. To reach the ambitious ¥970 billion target, SoftBank needs to squeeze out a remarkable ¥108 billion in recurring operating income growth over the next two years, all while absorbing the financial impact of its massive AI undertaking.

Further complicating matters is SoftBank's commitment to maintaining its ¥86 dividend per share. With approximately 5 billion shares outstanding, this translates to a dividend payout of roughly ¥430 billion, leaving only ¥540 billion from the projected ¥970 billion operating income to cover all other expenses, including the ongoing AI investments.

This creates a razor-thin margin for error. Any hiccup in core business growth, or a slower-than-anticipated ramp-up of AI revenue, could leave SoftBank scrambling to meet both its ambitious earnings targets and dividend commitments. The company's reliance on potentially uncertain government subsidies for AI further amplifies this risk.

This situation raises a compelling question: Is SoftBank biting off more than it can chew? While the AI opportunity is undoubtedly massive, the company's strategic balancing act – aggressive AI expansion alongside unwavering dividend payments – could leave it precariously exposed. The coming quarters will be a crucial test of this high-stakes strategy, revealing whether SoftBank can successfully navigate this tightrope walk to AI dominance, or whether its ambitious plans will ultimately unravel.

Beyond the numbers, the AI investment also highlights SoftBank's desire to reclaim its position as a technology innovator. The company, often overshadowed by its parent company's venture capital activities, is aiming to develop a uniquely "Japanese" generative AI, one optimized for the nuances of local language and business practices. This pursuit of a highly specialized AI model, tailored to a specific market, could offer a competitive edge against global giants, allowing SoftBank to carve out a dominant position in a rapidly evolving landscape.

However, success is far from guaranteed. The AI field is notoriously competitive, with established players like Google and Microsoft pouring resources into developing cutting-edge models. SoftBank's ability to attract and retain top AI talent, and rapidly iterate on its model development, will be crucial to its long-term success.

Ultimately, SoftBank's AI journey is a tale of ambition, risk, and opportunity. The company's willingness to commit significant resources, while maintaining generous shareholder payouts, showcases its confidence in navigating the turbulent waters of the AI revolution. Whether this bet will pay off, and propel SoftBank to a new era of technological leadership, remains to be seen.

Projected Operating Income Growth

The following chart shows SoftBank's projected operating income, based on their medium-term plan and the Q4 2024 earnings call data.

"Fun Fact: SoftBank's robotics division developed Pepper, one of the first humanoid robots designed for social interaction and customer service. While Pepper hasn't achieved mainstream adoption, it reflects SoftBank's long-standing interest in cutting-edge technology and its potential to reshape various industries."