SoftBank Group Corp founder Masayoshi Son. — Bloomberg
TOKYO: A few weeks ago, SoftBank Group Corp founder Masayoshi Son stood alongside US President Donald Trump to unveil the Stargate Project, an artificial intelligence (AI) venture with OpenAI that could cost US$500bil or more. Now Son is figuring out how to pay for it.
The Japanese billionaire is looking at a technique called project financing that is sometimes linked with oil and gas projects, according to sources.
The strategy is used to build capital-intensive, large-scale infrastructure projects like the Trans-Alaskan pipeline – and has the big advantages that it typically requires less money upfront from anchor investors and can resort to long-term financing based on the project’s expected cash flows.
SoftBank is exploring ways to incorporate some aspects of that funding structure in Stargate, which would span multiple data centre and power-generation projects, said the sources.
One scenario under discussion would have SoftBank, OpenAI and partners Oracle Corp and Abu Dhabi’s MGX contribute in equity about 10% of the overall cost and tap debt markets for much of the rest, said the sources.
Announced with fanfare last month, SoftBank and OpenAI’s push to build out tens of gigawatts of data centre capacity has the potential to be the biggest rollout of computing power ever.
In addition to breaking ground on its first data centre site in Abilene, Texas, Stargate is close to selecting additional sites while eyeing more projects in over a dozen other states.
The plan is to spend US$100bil immediately, Son told Trump.
For much of Stargate, however, SoftBank has yet to settle on where the money needed would come from and is in discussions to bring additional stakeholders onboard.
The discussions – still early – are taking place as the rise of Chinese startup DeepSeek’s low-cost and open-source AI raises the prospect of a far more competitive and less lucrative landscape for tech providers ahead.
OpenAI is also fielding an unsolicited bid led by Elon Musk, sparking further uncertainty for Stargate’s fundraising plans.
On paper, a combined 10% equity stake of Stargate would come to approximately US$50bil, with SoftBank and OpenAI’s contribution ranging around US$15bil to a little less than US$25bil each, assuming SoftBank and OpenAI have an equal stake in the venture and Oracle and MGX make smaller contributions.
In practice, however, Stargate will be made up of a series of multibillion-dollar projects.
In addition to the pool of equity, much of the financing would be conducted on a project-by-project basis.
The financial structure is very complex, according to sources.
The Nikkei also reported earlier about SoftBank’s plan to keep the total equity exposure to around 10% of Stargate and a project-by-project financing structure.SoftBank – which is in charge of funding Stargate – may resort to preferred equity, mezzanine debt and senior bank loans to raise the sums needed.
The proportion of preferred equity and debt will depend on the additional investors who sign on to each project, which may focus on just semiconductors or servers, a sources said.
With project finance as a model, one possible breakdown might be 10% in common equity, 20% in preferred equity and mezzanine debt and 70% in senior debt, another source said.
Another scenario might have preferred stock and mezzanine debt make up 40%, with senior debt accounting for 50%.
High-leverage structures
Both are high-leverage structures that are in line with those used in infrastructure projects such as pipelines, power plants, bridges or telecommunications networks, although SoftBank’s access to Japan’s ultra-low interest rates and popularity among retail bond investors may ease the burden.
No decisions have been made, and discussions are in flux.
SoftBank is reaching out to more partners, and the anchor investors may ultimately opt for other forms of financing, depending on market conditions, the sources said.
Whether this financing structure is viable remains in question: Terms for project financing are determined in part by the undertaking’s cash flow projections, and cash from AI services remain hypothetical.
A representative of SoftBank declined to comment.
OpenAI chief financial officer Sarah Friar said in a recent blog post the companies will take a “structured, phased approach to investment.”
Additional partners
While OpenAI, SoftBank, Oracle and MGX are the first equity funders, the plan is to bring in additional partners, she wrote in the post.
“We’re actively engaging a diversified group of institutional investors to build a strong, resilient capital base.”
Son stood alongside OpenAI’s chief Sam Altman in meetings with Japanese Prime Minister Shigeru Ishiba and Samsung Electronics Co chairman Jay Y. Lee last week in a bid to rally support for Stargate.
“I want to expand Stargate to Japan,” Son said during the first leg of Altman’s global tour.
SoftBank’s discussions come as hyperscalers tap new financing methods to pay for soaring costs of AI hardware.
Companies including Nvidia Corp-backed startup CoreWeave are using graphic processing units as collateral for loans, with support from the likes of Blackstone and Magnetar, to finance billion-dollar data centre projects.
Such financial structures hinge on the assumption that bleeding-edge Nvidia chips – which now cost tens of thousands of dollars – will retain value.
That’s a premise that DeepSeek’s cheap AI is now stress-testing.
Few, if any, data centre projects rely on the levels of debt now floated for Stargate, however.
SoftBank’s investment in OpenAI focusing on proprietary large-language models (LLMs) may total about US$15 to $25bil.
Low-cost models
This could be risky amid the market trend toward low-cost, open-source models.
The growing popularity of DeepSeek implies enterprises have begun to value the customisation, control and cost-effectiveness of such models.
While Meta focuses on open-source, AI giants Google and Alibaba have joined the fray with cheaper open-source versions, in addition to their proprietary, closed LLMs.
The trend might turn AI into an affordable technology available to everyone. This implies OpenAI’s return on invested capital could disappoint, failing to justify its current high valuation, said analysts. How SoftBank plans to fund Stargate is top of mind for investors and creditors, who worry about Son’s propensity for big, bet-the-house deals. — Bloomberg
