SoftBank Group swung to a net loss of 1.12 trillion yen in the July-September quarter, as a 597.2 billion yen charge tied to power equipment for U.S. artificial intelligence data centers and a jump in borrowing costs wiped out gains on its stakes in Intel and ByteDance. The Tokyo-based investor had earned 2.5 trillion yen in the same quarter a year earlier, according to its financial report released on Tuesday.

The loss pulled SoftBank into the red for the first half. Net loss attributable to owners for the six months to Sept. 30 was 768 billion yen, compared with a profit of 2.92 trillion yen a year before. For investors across Asia, the result shows how much of SoftBank's earnings now rest on a few large AI positions, and how expensive it has become to finance them. Its shares are closely watched as a proxy for AI sentiment in Tokyo, where chip stocks have been volatile, as in a recent selloff led by Kioxia and Advantest.

A data center write-off and a heavier interest bill

The largest single hit came from Silver Bands 7, a vehicle funded by SoftBank and its second Vision Fund that has been buying gas turbines and other power generation equipment for planned U.S. data center sites, including a campus in Pike County, Ohio. The unit had paid about 1.5 trillion yen ($9.48 billion) for capacity reservations and equipment since the last fiscal year. It changed its procurement plan to match what its projects now need, and SoftBank booked a loss of 597.2 billion yen ($3.73 billion). Of that, 457 billion yen related to nonrefundable advance payments and 140.2 billion yen to contract changes and settlements, the company said.

SoftBank said the unit can receive rebates of up to $2.1 billion on future equipment purchases over 10 years, subject to conditions. It did not record that amount as an asset.

Financing costs rose sharply. Finance cost for the half reached 790.7 billion yen, up from 340 billion yen a year earlier. Interest expense at the parent company rose to 676.4 billion yen, the filing showed, driven by an $11.5 billion margin loan backed by Arm shares, $30 billion of bridge loans drawn in April and July to fund OpenAI, and more bonds outstanding. SoftBank also wrote off the unamortized costs of the bridge facility in full after repaying it on Sept. 15, six months before its March 2027 maturity.

Two derivative positions added to the damage. SoftBank raised $7.35 billion in August through prepaid forward contracts backed by all its Intel shares, and recorded a 321.9 billion yen derivative loss on them as Intel's share price rose. A further 203.8 billion yen loss came from warrants that its Energy Global unit granted to OpenAI under data center lease arrangements. Selling, general and administrative expenses rose 46.5% to 2.37 trillion yen, largely on share-based pay at Arm, Graphcore and Energy Global and the addition of Ampere.

Investment gains shrink, OpenAI value unchanged

Gains on investments fell 56% to 1.73 trillion yen in the half. The holding company segment earned 1.08 trillion yen, almost all of it a 1.06 trillion yen gain on Intel. The Vision Funds contributed 705.6 billion yen, led by a $3.6 billion rise in the value of ByteDance in the first fund, partly offset by lower share prices at Coupang. In the second quarter alone, total investment gains turned to a loss of 133.6 billion yen.

OpenAI, SoftBank's largest bet, added nothing. The company held its valuation unchanged from the end of March, at a fair value of $99.6 billion against $54.6 billion invested as of Sept. 30. SoftBank completed the third $10 billion tranche of its $30 billion follow-on commitment on Oct. 1, funded by foreign currency bonds, bringing its cumulative investment to $64.6 billion and its stake to about 13%.

The quarter is a sharp turn from April-June, when SoftBank reported a net profit of 347.3 billion yen, an 18% decline that was smaller than analysts expected, helped by its Intel stake, Reuters reported in August.

Balance sheet: more debt, more cash

SoftBank raised 17.16 trillion yen and repaid 9.7 trillion yen on a consolidated basis in the half. The parent issued the equivalent of 4.07 trillion yen of bonds, including $14.6 billion of dollar and euro notes and 1.77 trillion yen of domestic straight and hybrid bonds. It also took a $11.87 billion term loan in September and drew $10 billion under a loan backed by OpenAI shares held by the second Vision Fund.

The company's preferred measure of leverage, loan-to-value, rose to 15.9% at Sept. 30 from 13% at the end of June, still below the 25% ceiling it sets for normal conditions. Net asset value fell to 59.8 trillion yen from 72.3 trillion yen in June but remained about 20 trillion yen above the March level. Its cash position, which includes undrawn credit lines, rose to 5 trillion yen ($32 billion).

SoftBank also completed its $3.1 billion purchase of digital infrastructure investor DigitalBridge on Sept. 30, adding 308 companies to its consolidated group. It kept its dividend forecast at 11 yen a share for the year, paid in two 5.50 yen installments.

Total assets climbed to 69.4 trillion yen from 60.7 trillion yen in March, while the ratio of equity attributable to owners to total assets fell to 23.6% from 29%. The next test is the October-December quarter, which will be the first to include DigitalBridge's results and the interest on the bonds that funded the final OpenAI tranche.