Can SoftBank Become The Next Hot AI Stock Through A Subsidiary That Nvidia Once Tried To Acquire?

As the artificial intelligence (AI) sector heats up, SoftBank Group SFTBY is positioning itself to potentially become the next hot AI stock.

The company’s CEO, Masayoshi Son, announced on Wednesday that SoftBank is preparing to “go on the counteroffensive,” leveraging its subsidiary Arm, a company that Nvidia once attempted to acquire.

What Happened: The recent boom in AI technologies has reinvigorated SoftBank’s leadership.

The company’s stock has seen a 37% increase since last month when Nvidia Corporation NVDA, another beneficiary of the AI surge and now a trillion-dollar-club member, predicted record profits due to high demand for its advanced chips, The Wall Street Journal reports.

SoftBank’s subsidiary, the U.K. chip designer Arm, which was acquired for $32 billion in 2016, is also expected to profit from increased investment in computational power. SoftBank holds a 75% direct stake in Arm, with the remaining shares owned by its Vision Fund.

Despite a failed acquisition attempt by Nvidia last year, Arm and Nvidia continue to maintain a symbiotic relationship in the chip industry. Nvidia plans to launch its Grace server chips, based on Arm’s architecture, later this year to compete with Intel and Advanced Micro Devices in the central processors for data centers market.

Why It Matters: The rise in Nvidia’s stock has also boosted other chip stocks, indicating a promising future for Arm’s upcoming initial public offering.

Jefferies, which recently upgraded SoftBank to buy due to its AI connections, has increased its estimate of Arm’s valuation from $40 billion to $60 billion. This is significant considering SoftBank’s market value is around $72 billion. The general tech stock rally should also aid SoftBank’s Vision Fund, which has been dealing with losses for the past few quarters, as reported by Benzinga.

However, there are concerns that Son’s aggressive investment style could lead to significant losses, as it did two years ago when SoftBank invested heavily in startups at high valuations during the pandemic.

Son earlier said he is a daily user of AI technologies like ChatGPT.

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