Jefferies Downgrades SoftBank Amid Investment Concerns

Investing.com — Jefferies stated that SoftBank Group Corp's (TYO:9984) $100 billion investment pledge in the U.S. may limit share buybacks and constrain stock upside. The Brokerage downgraded the stock to “hold.”

The investment focuses on AI ventures, energy projects, and semiconductor production, which could create long-term value, according to Jefferies.

However, short-term funding challenges and potential negative impacts on Net Asset Value (NAV) raise red flags.

SoftBank’s stock trades at a 53% discount to its asset value per share, a gap the company has tried to narrow through buybacks. Jefferies noted that this investment commitment may restrict SoftBank's ability to continue buybacks, thereby potentially widening the discount further.

The brokerage also flagged risks of selling key assets, like ARM Holdings (LON:ARM), to finance the plan, which could reduce overall NAV.

“Buybacks have been crucial in bridging the gap between NAV and stock price whenever it widens beyond 60% levels. But with this latest commitment, it seems that SBG may be constrained to execute another large buyback,” the analyst noted.

Jefferies lowered its price target on SoftBank to ¥9,930 from ¥13,540, citing increased discount rates on key assets and limited near-term upside.

Despite the downgrade, the stock has gained 4-5% since the announcement; however, Jefferies analysts stated that the “stock price up-move post the announcement makes little sense to us.”