SoftBank has a history of audacious moves. From its early investments in Yahoo! Japan and Alibaba to the creation of the Vision Fund, the Japanese conglomerate has always sought to be at the forefront of technological disruption. In recent years, however, SoftBank has faced significant challenges, particularly with the underperformance of its Vision Fund investments. This led to a period of retrenchment, with the company focusing on "defense" and shoring up its financial position.

However, SoftBank's latest earnings transcript reveals a quiet shift back to "offense", this time with a laser focus on Artificial Intelligence. While this strategic direction is not entirely new, a deeper analysis of the transcript and recent investment activity suggests a more nuanced and potentially game-changing strategy than has been publicly recognized.

SoftBank is not simply investing in AI companies; it is building an AI ecosystem. At the heart of this ecosystem is Arm, the chip design giant that SoftBank acquired in 2016. Arm's technology is becoming increasingly essential for the development of AI, with its energy-efficient chip designs perfectly suited for the demanding computational requirements of artificial intelligence applications.

As Arm CEO Rene Haas boldly declared at CES 2024, "AI is everywhere, and you can't run AI without Arm." This statement, echoed by SoftBank CFO Yoshimitsu Goto, reflects the growing recognition of Arm's critical role in the AI revolution. But the strategy goes deeper than just Arm.

SoftBank's investment in Wayve, a UK-based autonomous driving company, is a prime example of this ecosystem-building approach. Wayve's technology utilizes end-to-end deep learning, allowing vehicles to learn and adapt to real-world driving conditions in a way that traditional autonomous driving systems cannot. This approach, dubbed the "GPT for driving," has attracted significant attention, with NVIDIA and Microsoft joining SoftBank as investors.

The strategic significance of the Wayve investment becomes clearer when viewed in the context of SoftBank's other AI-focused investments. Companies like Symbotic, Berkshire Grey, and AutoStore, all specializing in AI-powered warehouse automation, create a clear synergy with Wayve's autonomous driving technology. Imagine a future where goods are transported from AI-powered factories via Wayve's self-driving trucks to fully automated warehouses, managed by Symbotic's systems. This seamless integration, powered by AI at every stage, offers a glimpse into SoftBank's vision for the future of industry.

But SoftBank's AI ambitions extend far beyond just logistics and manufacturing. The company is investing in AI across a wide range of sectors, including healthcare, finance, and services. The transcript highlights investments in Tractable, an AI-powered insurance claims platform, and Cato Networks, a cybersecurity company specializing in secure access service edge (SASE).

The key takeaway here is that SoftBank is not merely seeking financial returns from its AI investments; it is aiming to create a connected network of AI-driven companies that can collectively reshape entire industries. This represents a significant departure from the traditional venture capital model, where investments are often made in isolation, with little thought given to potential synergies.

The question remains: is SoftBank simply ahead of the curve, or are investors undervaluing the company's AI strategy? The persistent "SoftBank discount," the gap between the company's net asset value and its market capitalization, suggests the latter. Goto acknowledged the discount as a "serious thing" and emphasized the need for better communication to address it.

SoftBank's AI Ecosystem: A Network of Disruptive Companies

Here's where the hypothesis comes in. If SoftBank is successful in creating a robust and interconnected AI ecosystem, the value generated will likely far exceed the sum of its individual investments. This potential for exponential growth is not currently reflected in the company's share price.

Consider these numbers: SoftBank's net asset value (NAV) has doubled in the last year, reaching a near-record high of JPY 27.8 trillion (approximately $184 billion). However, the company's market cap remains significantly lower, hovering around JPY 9.2 trillion (approximately $61 billion). This discrepancy represents a NAV discount of over 50%.

If SoftBank can convincingly demonstrate the value of its AI ecosystem and its potential to disrupt industries on a global scale, this discount should narrow considerably. This could lead to a significant increase in the company's share price, potentially rewarding patient investors who recognize the long-term value of SoftBank's AI strategy.

The company's AGM in June, where CEO Masayoshi Son is expected to make a presentation, could be a pivotal moment for SoftBank's AI narrative. Investors will be closely watching for concrete details and a clear roadmap for the company's AI ambitions. If Son can deliver a compelling vision and demonstrate tangible progress, SoftBank may finally be able to shake off the discount and emerge as a true leader in the AI revolution.

"Fun Fact: Arm's chip designs are used in over 95% of the world's smartphones. That's right—almost every smartphone in your pocket is powered by technology originating from a SoftBank-owned company! This ubiquity underscores Arm's significance in the tech world and its potential to play a similarly dominant role in the AI era."