SoftBank Earnings: Earnings Growing Strongly but AI Expenses to Come

We retain our SoftBank fair value at JPY1,660 per share following its first-quarter fiscal 2024 result. The first-quarter revenue growth of 7.4% and underlying operating profit growth of 7.6% were ahead of the unchanged full-year guidance growth guidance of 1.9% and 2.7% respectively. However, management is still expected to invest heavily in artificial intelligence, which could contribute a JPY50 billion-JPY60 billion loss in fiscal 2024, offsetting the outperformance in the first quarter. We retain our narrow moat rating based on cost advantage and efficient scale in SoftBank's core telecom business. Our forecasts for underlying average operating profit growth over the next five years is 5.6% per annum driven mainly by forecast growth in Payment Services, LY Corp and lower competitive intensity in mobiles. We see the shares as slightly overvalued at these levels.