Since the start of the COVID-19 crisis, tech stocks are incredibly popular. This is of course triggered by the accelerated digitization that the crisis causes. When analyzing different tech stocks, it appears that there is a hue difference between them. Stocks of some businesses have fallen while those respective businesses actually experienced a huge growth in the last couple of years. In some cases, this growth is up to 40%. The reason for such differences is simply that other tech companies grew even faster, which increased their valuations.
Logically, due to the fact that many people stay at home online shopping and software companies such as Zoom saw their revenue increase. When analyzing the rise in tech stocks, however, it appears that something strange has happened. The Japanese tech investor SoftBank appeared to have bought for billions of dollars of call options on tech stocks. By buying such a large amount of call options, banks on the other side of the trade are forced to buy stocks, causing a feedback loop. Therefore, SoftBank actually artificially drives up the price of the tech stocks, causing their call options to increase in value.
Next to the earlier mentioned purchases of call options, SoftBank has been criticized earlier due to its enormous power in Silicon Valley with its SoftBank Vision Fund. Its portfolio companies include Uber, Slack, WeWork and DoorDash. To make it even more stunning: Saudi’s sovereign wealth fund (PIF) is behind 45% of the fund while Saudi’s leaders have been accused of ordering the murder of journalist Jamal Khashoggi. On top of that, criticizers of SoftBank claim that their strategy is actually disadvantageous for start-ups as the rivalry for huge amounts of money might hinder innovation and competition. In addition, when those companies IPO they not longer have a SoftBank check and the question then rises how sustainable those companies actually are.
What is your opinion about the strategies of SoftBank? Do you think it is controversial or do you think it is beneficial for the funding of tech companies.
References
Barrons. (2020, Sep 21,). Inside saudi arabia’s $360 billion investment fund. Retrieved from https://www-barrons-com.eur.idm.oclc.org/articles/interview-with-yasir-al-rumayyan-head-of-saudi-arabias-sovereign-wealth-fund-51600453301
Financial Times. (2020, Sep 4,). SoftBank unmasked as ‘Nasdaq whale’ that stoked tech rally. Retrieved from https://www-ft-com.eur.idm.oclc.org/content/75587aa6-1f1f-4e9d-b334-3ff866753fa2
Vox. (2019a). SoftBank, the most powerful — and controversial — tech investor in silicon valley, explained. Retrieved from https://www.vox.com/recode/2019/5/10/18563267/softbank-vision-fund-explainer-uber-wework-slack-ipo
Vox. (2019b). The way SoftBank invests in startups just doesn’t work, says khosla ventures’ keith rabois. Retrieved from https://www.vox.com/2019/1/8/18172813/keith-rabois-khosla-ventures-softbank-vision-fund-wework-kara-swisher-decode-podcast
