Japan's newly crowned top company gets a downgrade on AI 'mania' concerns

By Steve Goldstein OpenAI CEO Sam Altman (L) and SoftBank group Chairman and CEO Masayoshi Son shaking hands. SoftBank stock was downgraded by Deutsche Bank on Tuesday. Through its control of U.K. microprocessor designer ARM and investment in ChatGPT maker OpenAI, Japanese investment group SoftBank has nearly quintupled in value over the last year, and on Monday became the country's largest company, overtaking Toyota. Now, one analyst has had enough. Deutsche Bank analyst Peter Milliken downgraded the stock to buy from hold while nudging up his price target to 8,700 yen from 8,600 yen. SoftBank (JP:9984) on Tuesday rose another 1%, to 8,632 yen. "It's been a great run, based mainly on savvy investing, and partly on a bull market that has increasingly shown signals of entering a mania. Analysts and investors appear to us to have become fixated on short-term momentum, and less interested, or unable, to map out the long-term trajectory with detailed assumptions," he said. "We believe that following the sharp run-up in tech prices, and sharp depreciation of the yen, SoftBank investors are vulnerable to a reversal of either of these trends, and we now think the company is, at best, a fair balance of upside and downside risks," he added. Milliken notes that ARM (ARM), 87% controlled by SoftBank, is targeting a five-fold lift in revenue and EPS over the next five years. "However, if it achieves its EPS target, it would be trading at 39x P/E five years out, and yet we do not associate investors we have been talking to with patience," he said. OpenAI, of which SoftBank in February said it had a 13% stake, is valued by the analyst at $1.2 trillion. Every $100 billion move in OpenAI's valuation would only move SoftBank's target price by some 300 yen per share, the analyst said. "We have been noting for some months that the world's largest AI firm could potentially be a top-three firm by market cap. And in this world where USD2tn IPOs have become possible, it's not extreme to believe that OpenAI's value could get there, but it can also drop from our estimated level, which is considerably above its recent funding round, and the speed with which Anthropic has grown is concerning," he said. "Widespread take-up of the considerably cheaper, and more flexible, open-source models globally would also be concerning." -Steve Goldstein This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal. (END) Dow Jones Newswires 06-02-26 0435ET