In a recent note, I was looking at Softbank and Oracle, and thought they looked the weakest link in the AI financing chain. In simple terms, all the other AI players have access to the cash to compete, while Softbank was relying on margin loans on its ARM and OpenAI holdings. Looking at debt markets, CDS were also signalling weakness.
The law case that Elon Musk had against OpenAI was dismissed, and Softbank shares have surged to new all time highs. I do find it odd that credit and equity markets are saying different things.
Share price surges like this can happen when there is a lot of short interest. There are plenty of examples of this, but Avis Budget Group is a recent example. A slightly messy chart, but the blue line in the upper chart is share price, and the the middle chart shows that short interest built in 2025, leading to a mega short squeeze this year, with stock up 700% at one point.
There is no short interest in Softbank, at least reported short interest. In fact you can see short interest in Softbank was obliterated in the move from 1500 to 7000 in 2025. Of my short selling rules is never short stocks with high short interest, mainly to avoid squeezes like we saw in CAR US. There was no sign of squeeze potential in Softbank.
One reason could be that OpenAI is looking to launch an IPO, and this will greatly add liquidity for Softbank and Oracle, OpenAI partners in Stargate LLC. The problem with that view is that Oracle has barely reacted to news of the potential Open AI IPO..
Thinking about it, there are a few options for what is driving Softbank - the first and most obvious is retail enthusiasm, which given the move in most AI plays this year is understandable.
The second, which is more centred in finance, is that Softbank has taken margin loans out on its ARM and OpenAI stakes. In both cases, the size of the loans could not be easily hedged via ARM or OpenAI directly. Lenders to Softbank may have chosen to directly hedge via Softbank options. This should lead to implied volatility moving above historic volatility . We sort of see that with Softbank. This means Softbank ends up doing the opposite of what I expected - where a doom loop of falling valuations means equity comes under more pressure, the reverse is happening. Rising valuations lead to a rising Softbank share price.
On a completely different thought track, I also thought that OpenAI might be in trouble due to Anthropic taking market share, and/or retail subscribers not accepting price increases. I am subscribed to £20 a month ChatGPT function - which I use with work. It is good at making images, so have cancelled my Shutterstock account, and good at research, and I particularly like how it filters out Google ads from search results. But for writing, and organising, stuff, I felt it was incrementally better, rather than ground breaking. That changed this weekend, when I was working on my golf swing in my back yard, and uploaded a video to ChatGPT to see what is thought. I am still getting to grips with golf - and I am told by friends that I am “armsy”… which is exactly what ChatGPT told me. I was genuinely surprised at how quickly it was able to analyse my swing and give tips. The big one was getting my shoulders to follow through.
After a few drills it had improved my swing measurably. A golf lesson cost £50 - and ChatGPT had done a decent job. Made me think, there is definitely going to be some pricing power for these LLMs.
There were a lot of reasons, I liked the look Softbank being a weakest link - and it may still play out that way. But against that, there should be short interest from options that I cannot track easily, retail meme style investing, which you do not want to short against, and it has hit a new all time high. I have been bearishly minded for the last couple of year, with the breakout of gold versus the S&P 500 - which has normally a good time to be at least cautious. However the last few month has seen half of gold’s outperformance get reversed AND break through the 200MDA.
I never try and fight the market - its a fools errand. And markets were sending mixed messages until very recently. But I am a bit nervous about the signal now. On top of that, I have a new found respect of the capabilities of LLMs (I use LLMs for many things, but video analysis is the first one that I have really been amazed at). I think we would need to see more financial problems at OpenAI before getting really bearish. A price war might do it - but if anything the market is getting prepared for price hikes I think. The macro graph that has really broken out is SPX/TLT - which is at new highs, after having shown some weakness in 2025 and early 2026.
When do sovereign yields rise enough to bother markets? The market WILL tell us - but at the moment, it is saying not now. And within that analysis, betting on renewed Softbank weakness looks tough.
