SoftBank’s turbine snafu spins AI trade around
RPT-BREAKINGVIEWS-SoftBank’s turbine snafu spins AI trade around The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Jonathan Guilford
NEW YORK, Nov 11 (Reuters Breakingviews) - Digital euphoria has dominated the physical world. Investment is pouring into chatbot-powering data centers, with spending projected to hit $10.3 trillion between 2025 and 2032, the Brookings Institution estimates. Providing the picks and shovels for this building splurge has been extremely lucrative. Japanese technology giant SoftBank 9984.T stuck a wrench in the gears on Tuesday, revealing a $3.7 billion charge related to scaled-down reservations for power equipment. It indicates a potential slowdown that investors are already contemplating.
SoftBank boss Masayoshi Son rarely settles for half-measures. The notoriously eager tech maestro has made a big push into data centers and securing the ever-scarce energy to power them, including a $33 billion natural gas-fired project in Ohio.
Natural gas plants require turbines. The few big manufacturers – GE Vernova GEV.N, Siemens Energy ENR1n.DE and Mitsubishi Heavy Industries 7011.T – have taken far more orders than they can immediately satisfy, with Vernova’s backlog reaching $176 billion. Its shares soared by as much as 795% after it separated from former parent General Electric in April of 2024.
SoftBank ordered a whole lot of turbines. Its reservations exceeded 13 gigawatts’ worth, the Wall Street Journal reported, more than needed for existing projects. It is now trimming the surplus.
This raises a fear endemic to cycles of booming demand and tight supply: that key customers are over-ordering to keep options open. There have already been signs that local power grids’ hook-up demands outpace observable data-center consumption. After pandemic-era shortages sent buyers scrambling for chips, a brutal pullback crushed stocks like Intel.
The AI build-out dwarfs even Covid-19’s distortions. Just look across the landscape. Short of turbines, some projects have turned to smaller natural gas-fired engines for generation. Suppliers of those, like Rolls-Royce RR.L and Caterpillar CAT.N, also saw their stocks soar.
Meanwhile, someone needs to install all this kit. Contractors from site developer Sterling Infrastructure STRL.O to mechanical, electrical and plumbing specialist Comfort Systems USA FIX.N to power contractor Quanta Services PWR.N have done roaring trade serving the chatbot mania.
Yet all of these stocks have dipped back down, often extremely sharply. There are, indeed, signs that the AI building boom, while still expanding, is inflating slower than previous expectations. Business spending on tokens, the units of AI output, has moderated in recent months, Ramp data suggests. Wall Street now expects once-incredible growth in capital expenditures by tech giants like Microsoft and Meta Platforms to begin leveling out, judging by estimates collected by Visible Alpha.
Yet analysts’ forecasts for the picks and shovels just keep going up, with expectations for 2028 revenue smoothly rising. Vernova customers are booking turbines into the 2030s. Investors, though, have seen before that a whirring cycle can power down again, and sometimes with startling rapidity.
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CONTEXT NEWS
SoftBank said on November 10 that it had recorded a $3.7 billion loss in its second quarter related to advance payments for US data center equipment after it canceled orders.
The Japanese technology-focused investment group had reserved more than 13 gigawatts of turbines, in excess of requirements for key existing projects, the Wall Street Journal reported on November 10.
(Editing by Robert Cyran; Production by Maya Nandhini)
((For previous columns by the author, Reuters customers can click on GUILFORD/ Jonathan.Guilford@thomsonreuters.com))