Softbank Group Corp (SFTBY.US) shares may face limited upside potential in the near term following significant gains this month. Despite Monday's spectacular single-day surge of over 7 trillion yen (approximately $47 billion) that pushed the stock to a record high, some investors, including those at Sparx Asset Management, believe the 135% rally over four months has been excessive and warrants caution regarding potential pullback risks.

The driving force behind this rally has been founder Masayoshi Son's aggressive positioning in artificial intelligence: from the $500 billion data center project partnering with OpenAI and Oracle, to continuously increasing Nvidia holdings, and plans to invest $2 billion in Intel. These strategic moves have ignited market enthusiasm.

However, Tuesday's trading failed to maintain the momentum, with clear signs of profit-taking among investors. Technical signals suggest the stock may have reached a cyclical peak: Monday's intraday 14-day Relative Strength Index (RSI) briefly touched 90, well above the overbought threshold of 70. Notably, when the index reached similar levels in February and May 2024, the stock experienced significant corrections afterward.

Furthermore, the current stock price premium over analysts' target prices has reached the highest level since records began in 2010. Historical patterns indicate that such situations typically weaken upward momentum.

Kazuhiro Sasaki, Head of Japan Research at Phillip Securities, noted that this rally has been driven more by market sentiment than fundamental support. Some investors have been purchasing Softbank Group Corp shares to increase their Nikkei 225 index weighting, with the index also hitting new highs this week.

From a valuation perspective, Softbank Group Corp currently trades at approximately a 30% discount to book value per share. While this represents a narrowing from the 48% discount in late July, it still indicates diminished short-term appeal.

"The stock has overheated in the short term," stated Angus Lee, a fund manager at Sparx Asset Management. He added Softbank Group Corp to his portfolio in July but has recently chosen to take profits. Despite his long-term optimism about the value of potential IPO candidates in Softbank Group Corp's investment portfolio, he maintains a cautious stance in the near term.

This perspective reflects broader market concerns about the sustainability of Softbank Group Corp's stock price momentum.