SoftBank Stock Rally Faces Overbought Warnings Amid Strategic Intel Investment

SoftBank Group Corp., the Japanese technology investment giant, is facing market skepticism following an extraordinary surge in its stock price, with indicators suggesting an overheated valuation. After witnessing its shares climb over 135% in just four months, adding approximately $47 billion in market value this month alone, the rally is now confronting signals of a potential correction. The rapid ascent has prompted analysts and investors to re-evaluate the sustainability of its growth trajectory, especially as the company simultaneously pursues significant strategic investments.

A key technical indicator, the 14-day Relative Strength Index (RSI), recently spiked to 90, a level widely interpreted as an “overbought” condition. Historically, similar RSI readings in February and July 2024 preceded notable pullbacks in SoftBank’s stock. This technical signal, combined with the stock trading further above consensus price targets than at any point since 2010, fuels concerns among market observers. Angus Lee, a fund manager at Sparx Asset Management, commented that while he recently acquired SoftBank shares, the stock appears “overheated in the short term,” prompting him to secure some profits. Despite this short-term caution, Lee maintains a long-term positive outlook, citing the potential for future Initial Public Offerings (IPOs) from SoftBank’s diverse portfolio companies. Kazuhiro Sasaki, Head of Research at Phillip Securities Japan Ltd, noted that the rally extended beyond fundamental factors, partly driven by investors broadening their exposure to the Nikkei 225, which recently achieved record highs. However, SoftBank’s shares appear less compelling from a valuation standpoint, trading at around a 30% discount to Net Asset Value (NAV) per share, a narrower gap compared to the 48% discount observed in late July.

• SoftBank’s stock surged over 135% in four months, adding approximately $47 billion in market value this month alone.
• The 14-day Relative Strength Index (RSI) recently spiked to 90, indicating an “overbought” condition and suggesting a potential correction.
• The stock is trading further above consensus price targets than at any point since 2010, raising valuation concerns.
• While some investors are taking short-term profits, a long-term positive outlook is maintained due to potential future IPOs from SoftBank’s portfolio companies.
• The rally is partly attributed to broader investor exposure to the Nikkei 225, which recently hit record highs.
• SoftBank’s shares currently trade at a 30% discount to Net Asset Value (NAV) per share, a narrower gap compared to the 48% discount seen in late July.

Strategic Investment in Intel Amid Market Volatility

In a significant strategic move, SoftBank recently announced plans to acquire a $2 billion stake in Intel Corp., the American chipmaker. This news provided an immediate boost to Intel’s shares, which climbed over 5% in after-hours trading. Conversely, SoftBank’s stock experienced a 5% dip on the same day, reflecting investor apprehension regarding the investment amid its already elevated valuation. Reports indicated that the Trump administration was also exploring a 10% stake in Intel, potentially exchanging government grants for equity, as part of efforts to bolster U.S. chip manufacturing, specifically for a proposed flagship hub in Ohio. However, a White House spokesman cautioned that such arrangements should be considered “speculation” until officially confirmed. There have also been previous reports of President Donald Trump reportedly urging Intel CEO Lip-Bu Tan to resign over concerns about the company’s strategic direction.

Despite the strategic importance of the Intel acquisition, for which SoftBank is expected to pay $23 per share, broader market sentiment led to a continued decline in SoftBank’s shares. The firm’s stock dwindled 9% mid-week, extending losses into a second session, primarily influenced by a widespread downturn across Asian technology stocks. This decline mirrored an overnight selloff in Nvidia, which pressured tech equities in key Asian markets, including South Korea, Taiwan, and Hong Kong. Prominent Japanese tech companies such as Advantest, Renesas Electronics, and Tokyo Electron experienced declines. In Taiwan, TSMC, a crucial manufacturer of Nvidia’s powerful GPUs, eased by 1.69%, while Hon Hai Precision Industry (Foxconn), which has partnered with Nvidia on “AI factories,” saw a 2.16% loss. While the decline in these AI and chip-related companies has raised concerns among some analysts, Jayson Bronchetti, Chief Investment Officer at Lincoln Financial, suggested that the broader AI trade might not be “breaking,” but rather “catching its breath.”