Softbank plunges 50% as Japan AI stock rout deepens

Softbank Group Corp. shares tumbled to ¥4,595, their lowest since April, extending a nearly 50% decline from the year-to-date high as the AI trade unwinding swept through Asian markets.

"We don't think the AI story is broken," said Bruce Kirk, chief Japan equity strategist at Goldman Sachs Japan Co. "As long as you don't think there's going to be a substantial deterioration of the geopolitical situation, this looks like a good level to be adding to certain positions."

The Nikkei 225 has fallen 14% from its June peak after rallying about 44% through that high. South Korea's Kospi plunged 11% in a single session. Among the hardest-hit names, Kioxia Holdings Corp. and Furukawa Electric Co. have slumped at least 40% from their recent peaks. The selloff has swept through major AI beneficiaries across Japan, South Korea and Taiwan as investors question whether lofty valuations and the AI investment boom can be sustained.

The correction has lowered the bar for earnings to impress investors, Kirk said, with heavyweight chip suppliers including Advantest Corp., Tokyo Electron Ltd. and Kioxia set to report first-quarter results this week. Market estimates show first-quarter net profits at Topix companies — excluding Softbank — will rise about 26% from a year earlier, with a significant share of growth coming from AI-related firms, according to Goldman.

Wall Street Sees Opportunity in the Wreckage

Some Wall Street traders say the global unwind in AI momentum trades may be nearing an end. UBS's trading desk said last week that the selloff could be close to running its course, while Bank of America Corp.'s trading desk urged clients to buy US momentum stocks, arguing valuations have become attractive.

Goldman's Kirk expects investors' focus to shift back to fundamentals. "Ultimately, it's going to come down to earnings," he said. "A strong set of numbers should allow investors to refocus on the AI earnings story at significantly lower levels versus the end of June."

Crowded Trades and a Weaker Yen Add to the Risk

Despite the bullish calls, Kirk cautioned that volatility is likely to persist in the near term as investor positioning remains crowded. Goldman prime brokerage data show hedge funds' gross and net exposure to Japan as a percentage of total positioning are both above the 98th percentile of their five-year ranges — a very high level historically.

The yen's weakness adds another layer of complexity. The Japanese currency is trading near a four-decade low against the dollar, which has historically boosted exporters' earnings. Goldman last week raised its 12-month view on the Topix gauge to reflect weaker yen assumptions. Meanwhile, Softbank sold yen-denominated bonds at the year's highest coupon, signaling the company is locking in financing costs during the market turmoil.

This article is for informational purposes only and does not constitute investment advice.