SoftBank in discussions to invest upto $25 billion in Open AI

SoftBank is in discussions to invest up to $25 billion in OpenAI as part of a larger strategic partnership, potentially allocating more than $40 billion to AI initiatives with the Microsoft-backed startup, according to the Financial Times. This deal, if finalized, would establish SoftBank as OpenAI's largest single investor, surpassing Microsoft, which has been supporting OpenAI since 2019.

This announcement follows last week’s news that both companies plan to jointly invest $100 billion in Stargate, a U.S. data center project for OpenAI, which has the potential to expand to $500 billion over the next four years. SoftBank aims to contribute between $15 billion and $25 billion directly into OpenAI, alongside its $15 billion commitment to Stargate. OpenAI itself is expected to invest $15 billion in the project, with SoftBank's equity investment likely covering OpenAI’s infrastructure costs.

The investment talks emerge in the wake of the recent release of DeepSeek’s R1 “reasoning” model, which has disrupted AI industry dynamics. Built on a relatively modest budget, the model's launch caused ripples in the financial markets, particularly affecting chip giant Nvidia. Nvidia’s market cap fell by as much as $589 billion in one day before slightly recovering, as investors speculated that AI development might not require exorbitant investments in expensive hardware if companies could achieve similar results with fewer resources.

Adding to the controversy, OpenAI recently accused DeepSeek of using its proprietary models to train R1 and other AI systems through a technique called "distillation." This method allows developers to replicate high-performing models at a lower computational cost. OpenAI asserts that such usage would violate its terms of service, which strictly prohibit using its outputs to train competing AI models.

If finalized, SoftBank’s deal with OpenAI would mark the largest investment by SoftBank founder Masayoshi Son since he allocated $16 billion to WeWork. This partnership would also reduce OpenAI’s reliance on Microsoft for computing resources. Microsoft has recently agreed to relinquish its position as OpenAI’s exclusive cloud provider, signaling a shift in OpenAI’s strategic partnerships.

Financial details indicate that around 20% of Stargate’s funding will come from equity, with the remaining amount financed through debt secured against assets and projected cash flow. OpenAI, which was valued at $157 billion last year, is also considering transitioning into a for-profit entity to attract additional investors and facilitate future fundraising efforts.

This investment, if completed, could significantly alter the landscape of AI research and development. It would provide OpenAI with critical funding to scale its operations, further cementing its position as a leader in the AI space. With SoftBank’s backing, OpenAI would have more autonomy in its infrastructure development and a diversified investor base to support its ambitious AI initiatives.