SoftBank Group Corp. is planning to offload its stake in Nvidia Corp. early next year as shares in the graphics chipmaker continue to slide, according to people familiar with the matter.
The Japanese investor could make about $3 billion in profit from the trade, said the people, who asked to not be identified because the matter isn’t public. No final decision has been made and SoftBank may opt to keep its stake or sell only part of it, the people said.
Representatives for SoftBank and Nvidia declined to comment.
While SoftBank still holds an equity stake in Nvidia, it has constructed a so-called collar trade of about $6 billion, the people said, which allows investors to amass stakes while protecting themselves against a decline in stock prices. SoftBank has structured equity trade deals with investment banks to hedge against a drop in Nvidia’s share price, the people said.
For much of this year Nvidia’s stock had been on a tear, benefiting from a range of factors from artificial intelligence to cryptocurrency mining. However Nvidia’s shares have fallen 48 percent since their peak on Oct. 1 as the trade spat between the U.S. and China combined with weaker demand and growth prospects for chipmakers.
The dramatic fall in its share price has caused SoftBank to lean toward offloading its stake, the people said.
Nvidia fell about 2 percent to $149 per share at 1:20 p.m. in New York trading Tuesday, giving the Santa Clara, California-based company a market value of about $90.9 billion.
SoftBank’s opportunity to sell its Nvidia stake is structured via a series of tranches that begin to expire early next year, said the people. The average price for the options is between $230 and $240 a share, one of the people said. SoftBank may decide against exercising its option to sell its stake if Nvidia’s share price rallies, the people said.
SoftBank quietly amassed a $3 billion stake in Nvidia in early 2017, making it the fourth-largest shareholder. The holding was later transferred to the Vision Fund, SoftBank’s giant technology investment fund.
The value of SoftBank’s Nvidia’s stake peaked at $7 billion in September, and the Japanese investor would get close to $6 billion if it were to exercise all of its options at their average strike price.
In November, Nvidia posted a fourth-quarter outlook below expectations, hurt by weakness in its gaming division and the lingering loss of demand from the collapse of cryptocurrency mining. The results prompted price-target cuts on Wall Street, with Goldman Sachs Group Inc. saying its bullish view had been “ clearly wrong.”