Author: Tide Research
Japanese stocks surge: Supplying the shovels for the AI gold rush
Who is selling shovels in the AI era, and why did Japan's stock market surge?
While global investors fixate on NVIDIA’s earnings, TSMC’s expansion, and Samsung’s HBM yields, a quiet surge is unfolding at the Tokyo Stock Exchangeexchange.
On June 3, 2026, the Nikkei 225 index surpassed 68,000 points for the first time, with a year-to-date gain nearing 33%, more than triple the S&P 500’s gain and over double that of the Nasdaq during the same period.
This isn’t a balanced, slow bull market—the flow of capital is extremely concentrated in the AI semiconductor supply chain. Just two stocks, Tokyo Electron and Advantest, together pushed the Nikkei index up by approximately 840 points that day.
Even more astonishing numbers belong to Kioxia Holdings, a NAND flash manufacturer that went public in Tokyo in December 2024, with its stock price surging from an IPO price of 1,455 yen to over 78,000 yen—in less than a year and a half, a gain of more than 3,500%, briefly making it the second-most-valuable company in Japan, surpassing Toyota.
Behind these numbers lies an often-overlooked industry fact: on the world’s most crowded AI赛道, Japan does not design or manufacture chips, yet it controls nearly everything required to produce them.
Equipment, materials, wafers, passive components, power systems, cooling solutions, and optical fiber cables—from the first cut of silicon to the final fiber connection in the data center—Japanese companies dominate the upstream segments of the AI supply chain. Using an old but precise analogy: in the AI gold rush, Japan is selling the shovels, dynamite, and headlamps.
We will break down this industrial chain into six levels and analyze Japanese companies’ positioning, financial performance, and investment rationale at each level.
Layer 1: Semiconductor manufacturing equipment
The essence of chip manufacturing is using extremely precise equipment to etch circuits layer by layer on silicon wafers. The more advanced the process node for AI chips (GPU, ASIC, HBM), the more manufacturing steps are required, and the higher the precision demands for each step. This makes semiconductor equipment the segment with the highest technological barriers, highest profit margins, and greatest certainty across the entire AI industry chain.
Japan holds the second position in this field after the Netherlands' ASML and the United States' Applied Materials. Six core companies each control critical entry points for different process nodes.
Tokyo Electron (8035): A leading comprehensive manufacturer of front-end equipment
Tokyo Electron is the world's third-largest semiconductor equipment manufacturer and ranks among the top two globally in four key segments: coating/developing (nearly 90% market share), etching, cleaning, and film deposition. Whether it’s TSMC, Samsung, or Intel, no advanced process fabrication line can be built without it.
Revenue of JPY 2.44 trillion and net profit of JPY 574.45 billion for fiscal year 2026 (ending March 2026), both record highs, with an operating margin of approximately 29%. The 52-week price range was from JPY 19,870 to JPY 61,420, with a year-over-year increase of approximately 76%.
The migration of AI chips to 2nm and below processes means more manufacturing steps per wafer and higher equipment consumption. This follows an incremental logic where "the more advanced the node, the higher the equipment value." Of 22 analysts, 17 have given buy ratings, with none recommending a sell.
Advantest (6857): The final checkpoint before every AI chip ships
The more complex AI chips become, the more critical testing becomes. Advantest holds approximately 50% of the global market share in SoC test equipment and also dominates the memory test equipment market. Every NVIDIA GPU and every HBM chip undergoes testing on its machines before leaving the factory.
Revenue for FY2025 (ended March 2026) reached ¥1,128.6 billion, a 44.7% year-over-year surge, with an operating profit of ¥499.1 billion and an operating margin of an impressive 44%. Gross margin remained at a very high level of 55%-58%. Over the past year, market capitalization increased by more than 309%, and the stock price has risen approximately 145% year-to-date.
A single AI testing machine costs hundreds of millions of yen, has a long inspection time, and offers extremely strong leverage for scaling production. The company has further raised its financial forecast for FY2026 to revenue of 1.42 trillion yen and operating profit of 627.5 billion yen.
Disco (6146): The exclusive monopolist in ultra-thin wafer thinning machines for HBM
Manufacturing HBM (High Bandwidth Memory) requires stacking multiple layers of DRAM chips, each of which must be ground to an extremely thin thickness. Disco holds a near-monopoly in this ultra-thin thinning machine market, with a global market share of 70%-80%.
For the fiscal year ending March 2025, revenue reached approximately ¥385 billion, representing a year-over-year growth of about 25%, with an operating profit margin exceeding 40% and an estimated gross margin of around 60%. Its business model has a clever twist: "equipment sales + high-consumption consumables (cutting blades, grinding wheels)"—each machine sold generates a continuous stream of cash flow from replacement blades and wheels.
Lasertec (6920): 100% global monopoly in EUV mask inspection
To manufacture the most advanced AI chips, EUV (extreme ultraviolet) lithography technology is required. For defect detection on EUV masks, only one company in the world can do it: Lasertec, with a 100% market share, no exceptions.
Revenue for FY2025 (ended June 2025) reached JPY 251.4 billion, with an operating profit of JPY 122.8 billion and a margin of 48.8%, setting the industry benchmark for profitability in the global semiconductor equipment sector. Its latest-generation product, the ACTIS A300, supports High-NA EUV processes and features its proprietary EUV light source, URASHIMA.
This is a business model based purely on monopolizing disruptive technology, with extremely high barriers to entry.
Screen Holdings (7735) and Denso (6525)
Screen Holdings is the global leader in single-wafer cleaning equipment. As chip manufacturing processes become more complex, the number of cleaning steps increases geometrically, maintaining operating profit margins above 20%. Kokusai Electric has strong competitiveness in batch-type film deposition (ALD/CVD) equipment, with robust demand for advanced film processes required for 3D stacking and HBM.
Layer 2: Semiconductor Materials and Silicon Wafers
The journey of every chip begins with a wafer of ultra-pure monocrystalline silicon. AI chips demand far higher levels of wafer flatness and defect density than consumer-grade chips. The photoresist, polishing slurries, and packaging materials required to produce these wafers are almost entirely controlled by Japanese companies.
Shin-Etsu Chemical (4063) and SUMCO (3436): The Duopoly in Silicon Wafers
Shin-Etsu Chemical and SUMCO together control more than 50% of global 300mm silicon wafer capacity. Adding Taiwan GlobalWafers, Germany Siltronic, and South Korea SK Siltron, the top five account for approximately 80% of the market—a concentration even higher in the advanced wafers required for cutting-edge processes.
Shin-Etsu Chemical's semiconductor silicon wafer business has consistently maintained an operating profit margin above 30%, with the company's overall profit margin around 30%. It doesn't just produce wafers—it is also one of the world's largest suppliers of photoresist raw materials, and manufactures epoxy resins for chip packaging and rare earth magnets, spanning multiple critical nodes in the semiconductor materials supply chain and diversifying risk across industry cycles.
As a pure-play silicon wafer company, SUMCO is more sensitive to supply and demand fluctuations in the memory market, with its operating profit margin currently fluctuating between single digits and around 10%. However, the premium for advanced wafers driven by AI will become the core engine for its profit rebound.
The common strategy of both companies is "cautious capacity expansion." Having experienced the lessons of overcapacity in the silicon wafer industry over the past few years, there is little appetite for aggressive expansion. Shin-Etsu Chemical is advancing new factory construction both domestically in Japan and overseas, with an expected increase in capacity of more than 20% by the end of 2026.
Tokyo Ohka Kogyo (4186) and Resonac (4004): The Hidden Army of Chemical Materials
In addition to silicon wafers, AI chip manufacturing consumes large amounts of chemical materials: photoresist (which determines the precision of chip line widths), CMP slurries (used to polish wafer surfaces), advanced packaging materials, and thermal interface materials.
Tokyo Ohka Kogyo (4186) and Resonac (formerly Showa Denko, 4004) are global leaders in these fields. Their products may not be as visible as equipment, but they are equally indispensable. The increasing number of process steps in AI chip manufacturing directly raises the amount of chemical materials consumed per wafer.
Layer 3: Storage Chips
Both AI training and inference are tasks with enormous data throughput. The loading of large language model weights and the reading and writing of KV Cache are driving exponential growth in demand for high-speed storage. NAND flash, as the core medium in data center SSDs, is undergoing an AI-driven supercycle.
Kioxia Holdings (285A): The King of NAND Cycles
Kioxia is the most explosive stock in this round of Japan's AI market rally, without a doubt.
Since its IPO in December 2024, the stock price has risen over 3,500%. The 52-week price range has spanned from ¥1,950 to ¥83,140—a volatility level extremely rare among large-cap stocks in developed markets. For the fiscal year 2026 (ending March 2026), revenue reached ¥2.34 trillion, up 37% year-over-year, with net profit doubling to ¥554.49 billion. The first quarter of 2026 was even more explosive: quarterly revenue hit ¥1,002.9 billion, surging 189% year-over-year, while operating profit skyrocketed 15-fold to ¥59.68 billion, setting a new quarterly record. The average NAND price in U.S. dollars doubled during this quarter.
The driving force is a historic supply-demand mismatch: explosive demand for NAND from AI data centers colliding with a supply side that won’t see new capacity until the end of 2027. Goldman Sachs upgraded Kioxia from Neutral to Buy in June 2026, raising its target price from ¥48,000 to ¥93,000. Kioxia has announced it will begin dividend payments starting in fiscal year 2027 and plans to issue ADRs in the United States.
The risks are very clear: the NAND industry is inherently highly cyclical. The current trailing P/E ratio is close to 77x, while the forward P/E is around 8.8x—this massive discrepancy itself indicates that the market is betting on explosive profit growth continuing. Should AI capital expenditures slow down or new capacity be released en masse, price declines could be severe.
Layer 4: Passive Components and Substrates
The hardware architecture of an AI server is fundamentally different from that of a traditional server. AI GPU motherboards require a massive array of passive components—particularly MLCCs—to stabilize current, along with ultra-high-spec multilayer packaging substrates to support the GPU chips. A single AI GPU accelerator card can be equipped with thousands, even up to 20,000 MLCCs, representing a magnitude increase compared to smartphones or PCs.
Murata Manufacturing (6981): Global leader in MLCCs
Murata is the absolute leader in the global MLCC market, with approximately 40% market share. AI servers have extremely demanding requirements for high-voltage, high-capacity, and ultra-reliable MLCCs, and Murata possesses the deepest technological moat in this high-end segment.
Revenue for FY2025 (ended March 2026) reached ¥1,830.9 billion, a record high, with an operating profit of ¥281.8 billion and a profit margin of 15.4%. Sales to data centers surged approximately 70% year-over-year. Murata officially stated that current order demand for high-end capacitors for data centers has reached twice the company’s existing production capacity, and this severe supply-demand imbalance is expected to persist for 1-2 years.
On May 29, 2026, Murata increased by over 96% in the past month.
Taiyo Yuden (6976): The MLCC stock with the greatest AI exposure
Taiyo Yuden ranks third globally in the MLCC market, with MLCCs accounting for 64% of its revenue and demonstrating significantly greater resilience to AI server demand than Murata.
Net profit for FY2025 surged 5.4 times year-over-year to ¥14.8 billion, with orders for Q1 reaching over ¥100 billion for the first time, and the BB Ratio remained above 1.25. Taiyo Yuden has already raised prices on low- to mid-capacity MLCCs by 6%-13%. In an interview with Bloomberg, CEO Katsuya Sase described current demand with one word: “scary.”
Goldman Sachs predicts that demand for AI servers for MLCCs will at least quadruple by 2030, while industry-wide capacity grows by only about 10% annually. Taiyo Yuden has risen 163% over the past month, with internal forecasts for FY2027 projecting a 50% increase in operating profit to ¥30 billion.
TDK (6762): A Diversified Player Beyond Just MLCCs
TDK involves aluminum electrolytic capacitors, film inductors, optical transceiver components, HDD heads, and secondary batteries for AI data centers.
For FY2026, expected revenue is 2,504.8 billion yen, with an operating profit of 272.4 billion yen, yielding a margin of approximately 11%. The company plans to expand AI market sales at an annual rate of 25%-30% by FY2031, with AI data center sales of passive components targeted for a tenfold increase. However, since the majority of overall revenue still comes from energy applications (battery business), the profit elasticity driven by AI is relatively modest compared to the other three component manufacturers.
Ibiden (4062): Monopoly leader in GPU packaging substrates
Fujikura's FC-BGA (Flip Chip Ball Grid Array) substrate serves as the core carrier for NVIDIA GPUs and data center CPUs. It holds an estimated 70%-80% market share in the high-end packaging substrate segment for AI servers. In the industry, it is often said: "Without Fujikura and Shin-Ko Electric, no high-performance server processors can be manufactured worldwide."
Projected revenue for FY2026 is 415 billion JPY, with an operating profit of 61 billion JPY and a margin of approximately 13%. The company plans to execute a massive capital expenditure of 500 billion JPY over the next three years, focusing on the development of the Ono and Kamenashi factories, with the goal of permanently securing global dominance in high-end AI packaging substrates.
In April 2026, it was the best-performing stock among global foreign IT stocks year-to-date. In February, it completed a share issuance raising ¥52.47 billion, all of which was directed toward capacity expansion.
Shinko Electric (6967): One of the Two Japanese Leaders in Package Substrates
Shinko Electric and Ibiden are known as the "Japanese duo" of high-end packaging substrates, collectively controlling 70%-80% of the global high-end substrate market. Their key customers are Intel and AMD, with a stable operating profit margin above 10%. Note that the parent company, Fujitsu, is collaborating with consortia such as JICC to pursue its privatization (Tender Offer), so monitor relevant announcements for secondary market activities.
Layer 5: Power and Cooling
The power consumption per rack in an AI data center is several times higher than that of a traditional data center. This creates three new bottlenecks: ultra-high-capacity power transmission and distribution along with uninterruptible power supplies (UPS), power semiconductors responsible for high-frequency power conversion, and liquid cooling systems and precision air conditioning for servers and chips. Approximately 30%-40% of a data center’s electricity consumption is used for cooling, making power and cooling the ultimate limiting factors for the deployment and scaling of AI computing power.
This level is often overlooked, but it is another area where Japanese companies benefit significantly.
Fuji Electric (6504): The leader in DC power supplies, UPS, and power semiconductors
Fuji Electric's product portfolio includes high-power UPS systems, dedicated low- and high-voltage power distribution systems for data centers, and power semiconductor components (IGBT and SiC modules) that form the core of power conversion. The latest financial report shows an 8% year-over-year increase in operating profit for the period April–December 2025, marking the fifth consecutive year of record highs. The infrastructure and power systems division achieved simultaneous growth in revenue and profitability due to a surge in data center orders. The company is expanding its data center power production capacity to 1.7 times its previous level, while maintaining an overall operating profit margin of 8%–9%.
Mitsubishi Electric (6503): The national team in heavy electrical equipment
Mitsubishi Electric has unmatched strength in high-voltage power semiconductors (IGBT/SiC) and large industrial-grade UPS systems. Its UPS business targeting overseas markets is entering a long-term growth phase, with products comprehensively integrated into the entire power infrastructure of AI data centers. The company’s consolidated revenue reaches JPY 5.5 trillion, with an overall operating profit margin of 8%-9%.
Daikin Industries (6367): The world’s leading air conditioning company enters the data center liquid cooling market
Daikin is the world’s largest air conditioning company and is transferring its core technologies to the data center cooling sector. Its chip-level direct liquid cooling system employs a unique negative-pressure circulation technology that makes liquid leakage extremely unlikely, even if the piping is damaged, offering strong protection for server hardware. In 2025, it acquired U.S.-based DDC Solutions and Chil-Dyne, fully integrating the North American AI data center cooling technology chain.
The data center cooling business has surged from JPY 23 billion in 2023 to approximately JPY 100 billion in 2025, with a target to exceed JPY 300 billion by 2030. The North American data center cooling market is expected to grow from approximately JPY 1.1 trillion in 2025 to JPY 2.7 trillion in 2030; Daikin has secured approximately 12% market share, ranking third in the U.S. The company’s overall consolidated profit margin exceeds 10%.
Layer 6: Fiber Optic Cables and Interconnection
AI data centers require ultra-high-speed, ultra-low-latency data interconnection across tens of thousands of servers, leading to explosive growth in demand for high-specification optical fibers, high-density optical distribution systems, and optical communication components. Japan’s “Big Three cable manufacturers”—Fujikura, Furukawa Electric, and Sumitomo Electric—have successfully shifted resources in recent years from low-margin traditional wiring harness businesses to high-value-added optical communication and data center operations, making them the most prominent performers in terms of stock price and financial results during this AI-driven market surge.
Fujikura (5803): The Superstar of the Nikkei 225
139 years of history, 1400% growth over two years. Fujikura’s ultra-fine, high-density fiber optic cable (Spider Web Ribbon technology) perfectly meets the extreme demands of AI data centers for space efficiency and cable management, with Apple among its core customers.
Achieved record-breaking performance in FY2026 (ended March 2026), with data center sales reaching 2.3 times the prior year’s level, prompting repeated upward revisions to financial forecasts. The company-wide ROE reached approximately 32.5%, and the consolidated operating profit margin rose to 13%-15%.
Demand growth far outpaces capacity, and CEO Naoki Okada publicly acknowledged a supply shortage. The company is investing 40 billion yen to build a new production line at the Sakura factory and has established a wholly-owned subsidiary in the U.S., Fujikura Optical Cable Systems LLC. On May 12, 2026, the stock price surged 11.6% to a record high of 7,624 yen.
Furukawa Electric (5801): Three-in-one solution combining optical fiber, optical components, and water-cooling modules
Furukawa Electric stands out by benefiting simultaneously from two cutting-edge sectors: high-density wiring for optical communications and chip-level liquid cooling modules for data centers.
Explosive growth in performance. Revenue for FY2025 reached ¥1,145.9 billion, and official forecasts for FY2026 have been significantly raised to ¥1,300 billion in revenue and ¥65 billion in operating profit. The water-cooling module business is planned to scale up from ¥6 billion in FY2026 to ¥25 billion in FY2027. The company aims to increase operating profit from its data center-specific business to 8.5 times the previous level, reaching ¥200 billion by the fiscal year ending March 2031. Current operating margins of 5%-7% are in a period of rapid expansion.
Sumitomo Electric (5802): Integrated leader in optical fibers, optoelectronic semiconductors, and power grid backbone cables
Sumitomo Electric's product lineup includes ultra-high-core-count fiber optic cables, ultra-high-speed optical transceiver semiconductor devices, ultra-high-voltage power transmission cables (used for cross-regional power supply to data centers), and third-generation compound semiconductor substrates (GaN/InP).
The company's overall operating profit margin is 6%-7%. As Japan's undisputed leader in wire and cable manufacturing, its stock has delivered over 90% excess returns driven by dual demand from data centers and optical communications.
When Japanese stocks surge
Japanese semiconductor companies haven't become strong today. Names like Tokyo Electron, Shin-Etsu Chemical, and Murata Manufacturing have been renowned in the industry for decades. Yet the Nikkei 225 remained trapped in the shadow of the post-bubble economic collapse for over 30 years, only finally surpassing its 1989 historical high in 2024. Why now, and why is capital flooding into Japan with such intensity?
The resonance of three forces.
First, the certainty of AI capital expenditures. In 2026, global tech giants are expected to invest approximately $800 billion in AI-related capital expenditures. On June 2, Alphabet, Google’s parent company, announced it would issue $80 billion in stock to finance its 2026 capital expenditures of $180–190 billion. This money will ultimately translate into orders for chip manufacturing equipment, purchases of silicon wafers, consumption of MLCCs, installation of fiber optic cables, and setup of UPS and cooling systems—with a significant portion of these orders going to Japanese companies.
Second, the amplification effect of yen depreciation. In June 2026, the USD/JPY exchange rate briefly surpassed 160. Japanese semiconductor equipment and materials companies generate most of their revenue in U.S. dollars while incurring costs in yen; a weaker yen effectively acts as an implicit subsidy for export-oriented businesses.
Third, the release of gains from corporate governance reforms. One legacy of Abenomics has been pushing Japanese companies to improve shareholder returns. Kioxia’s announcement of dividends and Fujikura’s introduction of restricted stock incentives were once unthinkable in Japanese corporations. The Tokyo Stock Exchange continues to pressure listed companies to improve ROE, and foreign investor interest in Japan’s market is structurally rebounding.
The Japanese government is also lending support. The semiconductor industry strategy released in March 2026 aims to increase domestic chip production value to 40 trillion yen (approximately $250 billion) by 2040, an eightfold increase from 5 trillion yen in 2020. Rapidus is building a 2nm fabrication facility, with mass production planned for 2027. TSMC is also expanding its advanced production lines in Japan.
Risks that cannot be ignored
The Nikkei Index has risen 33% this year, far exceeding even the most optimistic forecasts at the beginning of the year. UBS’s initial year-end 2026 target of 54,000 points has now been surpassed by more than 20%.
Concentration risk. On the day of the all-time high on June 3, just two stocks—Tokyo Electron and Advantest—contributed approximately 1,100 points of the gain, accounting for two-thirds of the day’s total increase. Any crack in the AI narrative could lead to a pullback in these high-weight stocks, directly dragging down the index.
Valuation stretch. Tokyo Electron has a P/E ratio of approximately 48 times, Advantest exceeds 60 times, Kioxia’s trailing P/E is close to 77 times, and Fujikura and Taiyo Yuden have seen their stock prices overextended in the short term due to excessive optimism. Any shortfall in earnings delivery could trigger a sharp valuation correction driven by expected discrepancies.
Yen reversal. The Bank of Japan is expected to raise rates further in 2026, and real wages have grown positively for four consecutive months. A rapid appreciation of the yen would compress profit margins for export-oriented companies.
AI capital expenditure cycle. Once global card giants enter a phase of adjustment in their capital spending, orders for highly elastic semiconductor equipment and upstream components will face significant cyclical downward revisions. Historically, every major IT infrastructure investment—from the fiber optics boom during the internet bubble to servers in the early days of cloud computing—has gone through a cycle from frenzy to digestion.
Trend Analysis
The essence of the Japanese AI semiconductor market is a revaluation of "deep infrastructure" value.
Over the past two years, the market has priced AI primarily around the most visible segments: NVIDIA designing chips, TSMC manufacturing them, and ASML selling the tools. But the AI supply chain is much longer and deeper—from silicon wafers to photoresists, from test equipment to MLCCs, from UPS power systems to liquid cooling solutions, from optical fibers to packaging substrates. Each link faces bottlenecks, and each bottleneck represents pricing power. Japanese companies sit precisely at the upstream end of this chain, occupying positions that are the hardest to replace.
From the perspective of investment certainty, the highest tier consists of "technology-monopoly" companies, with typical examples including Lasertec (100% monopoly in EUV inspection), Disco (nearly exclusive dominance in HBM thinning equipment), Advantest (extremely high market share in AI testing equipment), and Ibiden/Shinko Electric (the two leading players in high-end packaging substrates). These companies are nearly irreplaceable along the value chain and possess true global pricing power. Demand for MLCCs, wires and cables, and precision air conditioning has also surged significantly, but these sectors face considerable competition and are more susceptible to supply-demand dynamics and production expansion timelines.
Kioxia's 3500% surge reflects not just the sharp rise in NAND prices, but more importantly, the market’s growing realization that storage has become one of the key bottlenecks in AI computing power. The dramatic increases in Murata and TAIYO YUDEN stem from a harsh reality: an AI server requires several times more MLCCs than a traditional server, and global production capacity is far outpaced by demand.
For investors, Japan’s AI semiconductor sector offers a distinctly different way to participate compared to U.S. tech stocks. You don’t need to bet on which AI company will win—you only need to believe one thing: no matter who wins the AI race, they’ll all need Japanese equipment, materials, and components to compete.
A 33% annual increase won't happen every year. But from the perspective of industry cycles, the construction of AI infrastructure is far from over, and Japan's structural position in the global semiconductor supply chain won't be easily undermined in the short term.
Who controls the means of production in the AI era? Japan is still at the table.
Disclaimer: This article is provided solely for informational and investment research purposes and does not constitute any investment advice. Stock markets involve risks; investments should be made with caution. Stocks mentioned herein are for industry analysis only and do not represent recommendations to buy or sell. Data sources include the latest financial reports from various companies, Yahoo Finance, Investing.com, StockAnalysis, Bloomberg, and other publicly available information. Chaoxiang Research strives for accuracy but does not guarantee completeness; please refer to official exchange data for confirmation.
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