CNBC Daily Open: SoftBank doubles down on AI amid warnings from 'Big Short' investor

SoftBank sold its entire 32.1 million share stake in Nvidia for $5.83 billion in October, a strategic divestment reportedly aimed at funding its $22.5 billion investment in OpenAI. This move, according to a source familiar with the matter, was not driven by concerns over Nvidia's AI valuations, despite recent warnings from figures like Michael Burry regarding potential overstatement of AI company earnings. The transaction signals a significant capital reallocation by SoftBank towards another major player in the artificial intelligence ecosystem.

Analysis

SoftBank divested its entire 32.1 million share stake in Nvidia (NVDA) for $5.83 billion in October, a strategic move to fund its substantial $22.5 billion investment in OpenAI. This significant capital reallocation, which also included a partial sale of its T-Mobile (TMUS) stake, was explicitly stated not to be driven by concerns over Nvidia's AI valuations. Instead, it represents a pivot towards a different segment of the artificial intelligence ecosystem.

The divestment occurs amidst broader discussions on AI sector valuations, highlighted by Michael Burry's recent warnings about AI companies "understating depreciation" to "artificially boost earnings." While SoftBank's rationale contradicts Burry's skepticism, his comments introduce a cautionary perspective on the sustainability of current AI company earnings. This creates a dichotomy in expert views regarding the sector's financial health.

Concurrently, AMD (AMD) provided a robust outlook, with CEO Lisa Su projecting 35% annual revenue growth over the next three to five years, fueled by "insatiable" demand for AI chips. The company also anticipates gross margins between 55% and 58%, exceeding analyst expectations. This guidance underscores strong underlying demand and profitability within the AI chip market, contrasting with valuation concerns raised by some market observers.

Key Decisions for Investors

• Investors should closely monitor SoftBank's strategic shift into OpenAI, as it signals a significant reallocation of capital within the AI landscape.
• Consider the conflicting signals regarding AI sector valuations, weighing Michael Burry's depreciation concerns against strong demand projections from companies like AMD.
• Evaluate the sustained demand for AI chips, as indicated by AMD's bullish revenue and margin guidance, which suggests continued growth opportunities in the underlying technology.