• Low-cost AI raises question on need for $500 billion invesment

• Monetization ‘will take years,’ Fibonacci Asset’s Yun says

For SoftBank Group Corp. investors looking for the stock to climb back to all-time highs on a revival of the artificial intelligence boom, DeepSeek poses a major hurdle.

SoftBank is steering a $500 billion fundraising for the Stargate Project to develop AI infrastructure in the US, a plan that is key to founder Masayoshi Son’s drive to establish a leading position in the emerging field. But now DeepSeek’s low-cost AI model is begging the question of whether such massive spending is even necessary.

DeepSeek may spark a “near-term market correction” for SoftBank and other AI stocks, said Jung In Yun, chief executive officer at Fibonacci Asset Management Global Pte. While the AI rally should pick up again longer term, the focus will be on monetization, he said, adding that “will take years”.

Investment losses pushed SoftBank into the red for the latest quarter, and analysts’ forward earnings estimates are down around 25% from a late November peak. Bearishness has risen, with S&P Global Inc. data showing short interest in the shares at about 3.8% of the free float, near the highest level in 22 months.

The Tokyo-listed stock got a boost when Son joined US President Donald Trump last month to unveil the Stargate Project with OpenAI and other partners. It then tumbled days later as Chinese startup DeepSeek’s AI model shocked the world.

“Stargate has quite a few negative elements,” and DeepSeek highlights that AI may not actually require so much datacenter power, said Kazuhiro Sasaki, head of research at Phillip Securities Japan Ltd. SoftBank will be shouldering a lot of the investment itself, and “the interest on that debt is not insignificant.”

The financing burden for Stargate may also limit the stock buybacks that SoftBank has often relied on to support its share price, Jefferies Financial Group Inc. analyst Atul Goyal wrote in a note.

Sell-side analysts are still mostly bullish on SoftBank, with the average price target projecting a gain of around 30% in the stock over the next year. Market observers cite the company’s majority stake in AI darling Arm Holdings Plc as one major positive.

SoftBank is “equivalent to effectively investing in Arm but at a substantial discount,” said Masakazu Takeda, a fund manager at Sparx Asia Investment Advisors Ltd. He notes Arm is also difficult to buy with so little of the stock in free float.

Big gains in shares of Arm have have pushed its forward earnings-based multiple to over 80 times. The UK-based chipmaker got a boost Thursday after the Financial Times reported that it landed Meta Platforms Inc. as an early customer for a new chip.

Excitement over Arm and Son’s AI initiative had helped drive SoftBank’s stock to a record high last July before a global tech selloff on valuation concerns. Still down some 20% from its peak, the prospects for recovery hinge on realizing profits from AI.

“Lofty investments in Stargate might hurt the company’s profit in the short run,” Bloomberg Intelligence analysts Marvin Lo and Chris Muckensturm wrote in a note. “Growing concerns around a potential change in AI economics amid the emergence of DeepSeek’s low-cost, open-source large language models might cool the AI frenzy and thus cap SoftBank Vision Funds investment performance.”