SoftBank Stock Forecast: Partnership With Saudi Arabia Is Beneficial To SoftBank

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First

SoftBank Stock Forecast

Summary:

  • Saudi Arabia’s state-owned Public Investment Fund and SoftBank are creating a new technology-focused investment fund.
  • Public Investment Fund will contribute $45 billion during the next five years. SoftBank expects to contribute $25 billion to this partnership.
  • SoftBank and Saudi Arabia will likely focus on growing their empire covering Internet of Things and mobile gadgets.
  • SoftBank will have more funds to acquire leading tech firms. I won’t be surprised it if also makes a play for Nvidia or AMD soon.
  • SoftBank has strong buy signals based on its long-term algorithmic forecasts from I Know First

Saudi Arabia has selected SoftBank (SFTBY) as its partner for its new London-based technology-focused investment fund. Saudi Arabia’s biggest sovereign wealth investing arm, Public Investment Fund (PIF) will take lead partnership and it will invest $45 billion over five years. SoftBank in turn will invest $25 billion. Other partners might bring this new investment partnership to $100 billion.

Gaining the trust of Saudi Arabia’s rulers is a long-term tailwind for SoftBank. This new partnership with is a compelling reason for investors to add SFTBY to their long-term portfolios. SoftBank’s great track record of investing in tech firms like Alibaba (BABA), Yahoo Japan, and Supercell definitely impressed Saudi Arabia.  While the Saudi government is putting most of the money in the new tech-focused investment fund, I believe SoftBank will be in-charged of selecting what firms to invest in.

SoftBank already owns ARM Holdings, the exclusive license owner to ARM-based processors and other semiconductor products. I believe PIF will heartily approve if SoftBank spends another $5 to $10 billion every year to increase its empire covering mobile gadgets and the Internet of Things industries.

Internet Of Things Will Be Bigger Than Oil

Unlike the troubled oil industry, sales of smartphones/tablets and Internet of Things devices are still a growing business concern. Saudi Arabia’s sovereign wealth money will reap great returns if PIF allows SoftBank to become a one-stop-shop supplier of Internet of Things-related hardware, software, and cloud infrastructure.

Three years from now the global Internet of Things industry will produce aggregate revenue of $485.6 billion. Unfortunately, licensing ARM-based processors and chipsets is just a small parcel of the Internet of Things revolution. ARM Holdings’ revenue last year was only 968.30 million British Pounds ($1.18 billion). Licensing the processors that will power phones, smart home appliances, and wearables is not the best way for SoftBank and Saudi Arabia to profit from Internet of Things.

SoftBank needs to own firms that can build and sell server processors that could process the mobile and internet data from IoT devices and mobile gadgets.

SoftBank Stock Forecast

(Source: BI Intelligence)

Licensing ARM-based processors and GPUs is already a great business. However, there is more money to be made if SoftBank and Saudi Arabia starts using their new investment fund to acquire manufacturers of video cards and processors like Advanced Micro Devices (AMD) and Nvidia (NVDA). Nvidia is the leader in GPU-accelerated Artificial Intelligence super computers. AMD has a long history of building x86 server-grade processors.

Owning either AMD or NVDA will greatly fortify SoftBank’s Internet of Things strategy covering the data center segment. Nvidia’s cuDNN (Nvidia CUDA Deep Neural Network) is a great platform where SoftBank can take an early-lead in cloud-based machine learning. The ultimate scenario for Internet of Things is for intelligent machines to be self-learning and able to communicate with each other.

Machine to Machine communication will require Internet of Things companies to build wireless and secure Artificial Intelligence-enhanced networks. SoftBank and PIF could get healthy returns from their investment fund if it can buy firms that will help machines communicate with each other. Just look at the chart below, various industries will spends billions of dollars annually to get a secure or private machine to machine communication network.

SoftBank Stock Forecast

(Source: iotworm.com)

Conclusion

SoftBank and Saudi Arabia could become the world’s biggest investors in the technology sector. I won’t be surprised if SoftBank will eventually announce its takeover of AMD or Nvidia within the next five years. I believe that AMD and Nvidia are the next ideal acquisitions for SoftBank. These two firms could build server-grade and consumer-grade processors from SoftBank’s ARM designs.

Rather than just licensing ARM Holdings IP, SoftBank and Saudi Arabia will benefit more if it starts competing with Intel (INTC), Qualcomm (QCOM), and MediaTek. I look forward to SoftBank buying a chip design firm to come up with its own brand of mobile processors for the smartphone and IoT industries.

I also expect SoftBank to invests in firms that are involved in cloud computing. There are hundreds of cloud computing private firms that PIF and SoftBank could buy within the next five years. Slack, Dropbox, Docusign, Stripe, and Cloudera are some of the potential future acquisition targets for SoftBank. There is the probability of Saudi Arabia’s stashed oil money eventually helping SoftBank buy Twitter (TWTR) next year. Nobody wants to buy Twitter now. I predict that by next year TWTR will be cheap enough to buy.

Saudi Arabia poured $3.5 billion in money-losing Uber earlier this year. I expect PIF to also see some investing opportunity in acquiring Twitter. The oil wells in Saudi allows PIF to do risky investments. From now on, SoftBank has long-term benefits from Saudi Arabia’s 266 billion barrels of oil reserves.

I rate SFTBY as a Strong Buy. The 3-month and one-year algorithmic forecasts from I Know First are also very positive for SoftBank’s stock

sftby3

I Know First Past Success With SFTBY

I Know First has been bullish on SFTBY in past forecasts. On April 11th, 2016, an I Know First analyst had written a bullish article on SFTBY, in accordance with our state of the art algorithm. Since then, SFTBY has been up over 22%.

screen-shot-2016-10-16-at-4-51-53-pm

This forecast was sent out to I Know First subscribers on April 10th, 2016. To subscribe now click here.


premium