SoftBank’s Son Eyes Data Center Group Switch to Expand in AI
TL;DR
SoftBank is considering acquiring data center operator Switch Inc. as part of Masayoshi Son's strategy to capitalize on the AI-driven demand for digital infrastructure. The potential deal, valued around $50 billion, could help SoftBank secure key assets in the AI race, though discussions are ongoing and no agreement has been reached.
Key Takeaways
- •SoftBank is exploring acquisitions like Switch Inc. to strengthen its position in AI and digital infrastructure, driven by Masayoshi Son's ambitions.
- •Switch's owners seek a $50 billion valuation in a deal, while also preparing for a potential IPO with a $60 billion target, indicating high market interest.
- •An acquisition would give SoftBank direct control over energy-efficient data centers, addressing a bottleneck in AI development and expanding its portfolio.
- •SoftBank has been active in AI investments, including deals with OpenAI and chip companies, but faces financing challenges for large-scale acquisitions.
- •The company's shares have nearly doubled this year, reflecting investor optimism about its strategic moves in the AI sector.
Tags
SoftBank Group Corp. is studying potential acquisitions including data center operator Switch Inc., people with knowledge of the matter said, underscoring billionaire founder Masayoshi Son’s growing ambitions to ride an AI-fueled boom in digital infrastructure.
The Japanese company has held discussions with Switch leadership about a possible deal, the people said. Its owners have sought a valuation of around $50 billion including debt for the data center operator, said some of the people. Switch is simultaneously preparing for an initial public offering as soon as early next year, and the company’s backers have considered a valuation of about $60 billion including debt via a stock-market listing, the people said.
An acquisition of Switch, which specializes in designing and operating energy-efficient data centers, would help the Japanese billionaire control a key bottleneck to AI development. Son has been looking for ways to play a bigger role in an artificial intelligence race that’s created some of the world’s largest corporations from Nvidia Corp. to OpenAI.
SoftBank has been conducting due diligence on the closely held Switch, the people said, asking not to be identified because the information is private. It’s also been in advanced talks on a potential purchase of one of Switch’s main private equity backers, New York-listed investment firm DigitalBridge Group Inc., Bloomberg News reported last week.
The Japanese firm’s shares gained 3.9% on Friday in Tokyo.
What Bloomberg Intelligence Says
SoftBank’s AI infrastructure budget is set to sharply rise if it acquires US data center operator Switch at a valuation of up to $50 billion, including debt. Headline numbers for Stargate, SoftBank’s initial data center investment, are larger at $500 billion, but cash needs are closer to $40 billion when adjusting for a 40% joint-venture stake and project financing with only 20% equity. SoftBank may spend even less on Stargate, given its less-active-than-expected participation.
- Kirk Boodry and Chris Muckensturm, analysts
Click here for the research.
The SoftBank team often analyzes numerous potential deals before deciding which transaction to pursue, and it sometimes decides to do multiple deals in a particular area it wants to rapidly expand in. Acquiring Switch would allow SoftBank to own a large portfolio of data centers outright at a time when demand for their computing power is growing rapidly.
A consortium including DigitalBridge and Australian infrastructure manager IFM Investors Pty bought Switch in a 2022 deal valued at $11 billion including debt.
Shares of DigitalBridge have gained about 35% this year, giving it a market value of $2.8 billion. With about $108 billion of assets under management, it’s one of the biggest investment firms focused on digital infrastructure. A deal for DigitalBridge would bring to SoftBank — which has a track record of raising large amounts of capital — deep relationships with more investors keen to deploy money in the data center industry.
SoftBank hasn’t reached an agreement on terms of a deal, and there’s no certainty the discussions will lead to a transaction, the people said. It would likely need to line up significant financing for any acquisition of Switch, which would rank as one of SoftBank’s largest deals if it goes ahead.
Representatives for SoftBank, Switch and DigitalBridge declined to comment.
Despite being early to invest in AI technologies, Son has missed much of a global rally that’s positioned Nvidia, Taiwan Semiconductor Manufacturing Co. and OpenAI at the forefront of a global boom in machine learning.
| Read more about Son’s AI ambitions |
|---|
This year, however, SoftBank has announced a plethora of moves in the AI arena, including the $500 billion Stargate project alongside OpenAI, Oracle Corp. and Abu Dhabi’s MGX to build data centers in the US. But while Son pledged to deploy $100 billion “immediately,” the Stargate rollout has been slower than planned.
In recent months, SoftBank bought US chip designer Ampere Computing LLC for $6.5 billion and has committed roughly $30 billion to ChatGPT developer OpenAI. The Tokyo-based company has also proposed a $5.4 billion acquisition of ABB Ltd.’s robotics unit and bought a stake in chipmaker Intel Corp. To finance some of that cost, SoftBank has unloaded its entire Nvidia stake and expanded a margin loan using its Arm Holdings Plc shares. The company’s SoftBank Corp. telecom unit is also ramping up spending on its data centers in Japan.
SoftBank investors have responded favorably to these and other developments, with the company’s shares almost doubling this year before Friday.