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May 22, 2017

Largest Tech Fund Targets AI


A huge private equity fund launched over the weekend by Japan’s Softbank Group and a Saudi sovereign wealth fund targets artificial intelligence and other technologies while giving the new $93 billion fund the option of acquiring a larger stake in processor maker ARM Ltd.

The Softbank Vision Fund that is seeking $100 billion in committed capital is the largest private equity fund dedicated to technology development. Along with Softbank Group ($28 billion) and Saudi Arabia’s Public Investment Fund (an estimated $45 billion), other contributors included Abu Dhabi’s Mubadala Investment fund, which committed $15 billion.

Apple (NASDAQ: AAPL), wireless chipmaker Qualcomm (NASDAQ: QCOM), Sharp Corp. (TYO: 6753) of Japan and Taiwan’s Foxconn Technology (TPE: 2354) accounted for about 5 percent of the new Vision Fund.

Analysts noted that the fund also gains the option of acquiring a 25-percent stake in the chip intellectual property vendor ARM, which Softbank acquired last July. Softbank is also an investor in GPU pioneer Nvidia (NASDAQ: NVDA).

While it remains unclear whether the new fund would target startups or mature AI developers, it would compete for talent in areas like deep learning and machine learning with aggressive investors such as Google (NASDAQ: GOOGL). The search giant announced several machine learning initiatives last week during its developers’ conference as part of its “AI-First” initiative.

The Softbank fund was announced in connection with U.S. President Donald Trump’s visit to Saudi Arabia during which billions of dollars in business deals were signed. Masayoshi Son, Softbank’s (TYO: 9984) chairman and driving force behind the Vision Fund, was in the Saudi capital of Riyadh over the weekend, Reuters reported.

“The next stage of the Information Revolution is under way, and building the businesses that will make this possible will require unprecedented large-scale, long-term investment,” the Softbank Vision Fund noted in a statement.

“The biggest issue that the fund will face will be pressure to find good investments,” noted Richard Windsor, an analyst with Edison Investment Research. The Vision Fund’s “main shareholders will be wanting to see their money quickly put to work opening the door to making rapid but sub-optimal investments.”

Given the Vision Fund’s deep pockets and focus, “it should be a major player in [the technology] sector going forward,” Windsor added.

Saudi Arabia has begun investing its huge capital reserves in western technology companies such as Uber as policymakers seek to diversify into the tech sector as oil prices sag.

Meanwhile, Abu Dhabi’s Advanced Technology Investment Co. has invested heavily in the semiconductor sector, including contributions from the Mubadala state investment fund used to expand manufacturing operations at GlobalFoundries.

The launch of the Vision Fund comes as other investors flock to the AI sector. According to a venture capital tracking report released in April, a total of 90 investments in AI startups during the first quarter of 2017 were valued at $820 million.

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