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SoftBank Is Betting Big on U.S. Tech Megacaps

By Evan Niu, CFA - Aug 18, 2020 at 8:30AM

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The Japanese tech holding company is starting to pursue a different investing strategy.

Japanese tech conglomerate SoftBank (SFTB.Y 0.49%) is trying to rehabilitate its reputation after the company became widely mocked following the spectacular implosion of WeWork's planned IPO last year. The current state of that saga is that SoftBank has invested nearly $20 billion to own less than 100% of a company now worth around $3 billion, with SoftBank COO Marcelo Claure presently serving as WeWork chairman and trying to engineer a turnaround.

Following the headaches from investing in private start-ups -- SoftBank had invested in Uber when it was private and is still in the red on that position -- SoftBank is diversifying into big U.S. tech companies.

Semitrailer truck with Amazon Prime logo on the side of it

SoftBank just invested $1.2 billion in Amazon. Image source: Amazon.

Big tech is the exact opposite of private start-ups

In a regulatory filing this week, SoftBank disclosed that it has now accumulated significant stakes in a couple dozen tech stocks, including a few megacaps that are among the most valuable companies in the world.

Company

Shares

Value

Amazon.com (AMZN -1.44%)

378,470

$1.2 billion

Microsoft (MSFT -0.74%)

899,289

$189 million

Alphabet (GOOGL -0.72%)

335,091

$509 million

Tesla (TSLA -2.62%)

113,795

$209 million

NVIDIA (NVDA -0.86%)

476,162

$235 million

Netflix (NFLX -0.58%)

415,364

$200 million

Adobe (ADBE -0.80%)

571,006

$258 million

PayPal (PYPL 0.20%)

639,770

$126 million

Data source: SEC filings. Values as of Monday's closing prices.

This is not an exhaustive list and SoftBank has also invested in some smaller tech companies, but these are some of the largest investments by market cap.

Ginormous companies like Amazon and Microsoft certainly won't be as risky, but they also won't offer as much potential upside, as each company is already worth over $1.5 trillion. One of SoftBank's greatest success stories was its early investment in China's Alibaba, so it's no surprise that SoftBank CEO Masayoshi Son is fond of e-commerce. Generally speaking, enterprise software companies are also extremely popular among investors, which is where Microsoft and Adobe fit in.

The conglomerate has chosen to buy Alphabet Class A shares (GOOGL) that carry 1 vote per share, as opposed to the Class C shares (GOOG -0.69%) that receive no votes. There have been times in the past where the two share classes would trade at slightly different prices, suggesting that the ability to vote carries some value even though voting is largely a futile endeavor with Alphabet, as co-founders Larry Page and Sergey Brin still wield 51% total voting power combined. Both share classes closed yesterday within a couple dollars of each other, suggesting the market has realized those votes aren't worth much.

SoftBank had previously invested in NVIDIA but had sold off that stake in early 2019. NVIDIA is reportedly interested in buying Arm, the British chip designer that SoftBank scooped up for $32 billion in 2016 but is now trying to sell a majority stake in. In other words, SoftBank is reinvesting in a company that might acquire another company that it is trying to mostly unload, so it might end up still indirectly owning some of that divested company through a new investment while maintaining a separate partial stake. Simple!

Back in 2017, Tesla had reportedly met with SoftBank to discuss a potential investment. No deal materialized out of those discussions, but the electric-vehicle maker did end up scoring a $1.8 billion investment (a 5% stake at the time) from China's Tencent around that time.

When SoftBank reported second-quarter results earlier this month, it noted that it had been buying "highly liquid listed shares." Now investors know what that meant.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Alibaba Group Holding Ltd., Amazon, Netflix, Tencent Holdings, and Tesla. The Motley Fool owns shares of and recommends Adobe Systems, Alibaba Group Holding Ltd., Alphabet (A shares), Amazon, Microsoft, Netflix, NVIDIA, PayPal Holdings, Tencent Holdings, and Tesla. The Motley Fool recommends Uber Technologies and recommends the following options: long January 2022 $1920 calls on Amazon, long January 2022 $75 calls on PayPal Holdings, short January 2022 $1940 calls on Amazon, long January 2021 $85 calls on Microsoft, and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$140.64 (-1.44%) $-2.05
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$287.02 (-0.74%) $-2.14
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$118.84 (-0.72%) $0.86
Netflix, Inc. Stock Quote
Netflix, Inc.
NFLX
$242.70 (-0.58%) $-1.41
NVIDIA Corporation Stock Quote
NVIDIA Corporation
NVDA
$179.42 (-0.86%) $-1.55
Adobe Inc. Stock Quote
Adobe Inc.
ADBE
$434.89 (-0.80%) $-3.51
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$859.89 (-2.62%) $-23.18
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$119.82 (-0.69%) $0.83
SoftBank Group Corp. Stock Quote
SoftBank Group Corp.
SFTB.Y
$20.50 (0.49%) $0.10
PayPal Holdings, Inc. Stock Quote
PayPal Holdings, Inc.
PYPL
$99.11 (0.20%) $0.20

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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