This Stock Presents a Smart Play on the Future of AI

Can Japan’s most-famous tech investor rescue his reputation with smart plays in the next evolution of Artificial Intelligence?

Softbank Group SFTBY (T:9984) founder Masayoshi Son says he has newfound focus to invest in an age of “Artificial Super Intelligence,” which he believes can surpass the power of human knowledge by some 10,000 times.

Son, who made his name with prescient early plays in companies such as Alibaba Group Holding BABA (HK:9988), appeared to have lost his touch in recent years. But the tech investor is recharged now, saying he has found his new life’s calling.

“The mission of SoftBank is now clear to me,” he tells investors at the company’s recent annual general meeting. The grandiose name is the “Evolution of Humanity,” which he concedes is a lofty ambition.

“I don’t think we can have a bigger agenda than this, but I’m serious,” he tells investors. “When I say I’m gonna do something, I’m going to do it.”

He is already putting money where his mouth is. The Softbank Vision Fund 2 is investing between US$10 million and US$20 million in the U.S. search startup Perplexity AI, giving it a valuation of US$3 billion, Bloomberg reports today. The Softbank stake would be part of a larger US$250 million round of financing. The terms, however, have not been finalized and could still change.

Perplexity, which has already secured US$165 million in funding so far from the likes of Nvidia NVDA and Amazon.com AMZN founder Jeff Bezos, partnered in April with Softbank as well as Deutsche Telekom DTEGY to market its services to the mobile and broadband customers of those companies. The users of Softbank’s three mobile-phone service brands in Japan, for instance, will be able to use the Perplexity Pro search service for one year at no charge, a service that normally costs US$18 per month in Japan.

Perplexity AI aims to take on the likes of the Alphabet GOOGL subsidiary Google’s search engine, using Artificial Intelligence to provide smarter, more reliable information. It prefers to call its search an “answer engine,” providing responses in text rather than links.

The Softbank stake would be the first of a series of planned investments from the group into companies pushing the boundaries of how AI is used. Softbank says it will scale up investment in the space quite rapidly. It has also already invested US$200 million into Tempus AI, a startup that analyzes medical data.

Son admits he was doubting himself after a series of investments in the likes of shared-office landlord WeWork went horribly wrong. “I was really sad about myself,” he says now, wondering if he’d washed out. “I cried so hard. Can I just get old like this and go die?”

But thinking back to his friendship with Steve Jobs, Son says he learnt from the Apple AAPL founder to focus on your passion and mission. Thanks to advances in Artificial Intelligence, Son says he has discovered a new sense of purpose that is keeping him up at night with excitement rather than regret.

“I’ve been only focusing on this every day in the past year, even spending sleepless nights, and making my right brain working so hard thinking about it,” he explains. “My passion became my resolution. I didn’t sleep last night but I am clear in my mind.”

You can check out Son’s live investor presentation from the AGM here, with simultaneous translation into English, if you’re interested.

Son, 66, is a lot more animated and, well, happier in this year’s version of his presentation. One major reason is that he has an AI system to deliver a report on Softbank’s net asset value to him every morning so he knows how much “suffering” or “success” the company is experiencing. At the end of the 2023 fiscal year, it stood at ¥14 trillion (US$87 billion). As of the end of the 2024 fiscal year, that had risen to ¥34 trillion (US$212 billion).

Softbank itself has a current market cap of ¥14.9 trillion (US$93 billion), but has seen its share price double since the end of its last business year. The stock is up a whopping 67.5% year to date.

A large part of that leap can be attributed to its successful listing of chip designer Arm Holdings ARM last September. Its shares have risen from the US$51 listing price to US$165 now, in large part because its chip designs are used in cloud computing and AI.

Arm technology is already being used by data-center operators including Nvidia, in its Grace Blackwell superchips, as well as in the Axion processors produced by Google, the Azure Cobalt “virtual machines” made by Microsoft MSFT, the Amazon Web Services Graviton processor, and the Oracle ORCL processors Ampere Altra Max.

Softbank has sold down its Alibaba shares, having first invested US$20 million in 2000. In January, it booked a US$8.5 billion gain when it divested its remaining holding.

Venture-capital investing is by its nature hit and miss. BABA was a clear hit. I identified Softbank shares as a great way to play Arm, and I would reiterate that advice as it continues its investments into AI … assuming that Son hits enough of his targets. The Perplexity AI and Tempus AI investments are the first attempts. Watch this space in the next couple of years as Son gets back in gear.