https://t.co/ZwH0Y94CZ1 [Breaking Analysis by Tomohiro Okawa] Nikkei Average Plummets Amid U.S. Midterm Elections / How Will AI and Semiconductor Stocks Fare if Democrats Gain Majority? / Kioxia Drops Below ¥10,000 Temporarily—What’s Next? / Defense, Banking, and Hardware Stocks Decline—Who’s Rising? / Memory Prices Expected to Fall? [Shiho Sata] Rakumachi #AISummary U.S. Midterm Elections Trigger Japanese Stock Sell-Off: The Future of AI Investment and Promising Stocks Ahead 🔳 Democrats Gain Edge in U.S. Midterm Elections Opinions are growing that the Democratic Party will gain an advantage in both chambers of the U.S. Congress, with prediction market Polymarket showing a 98% probability of a decisive Democratic victory. As vote counting began, Democratic momentum became clear, and markets reacted faster than anticipated. 🔳 Nikkei Average Drops Sharply by ¥2,260 Following reports of Democratic strength, the Nikkei Average plunged as much as ¥2,260 to around 68,000, briefly threatening to break below the 60,000 level. Selling pressure spread broadly across AI and semiconductor-related stocks, creating a panic-driven market decline within a short period. 🔳 Why This Midterm Election Is Unusual Typically, midterm elections result in losses for the president’s party, with limited market impact. However, this time, the market capitalization of AI and data center-related companies has grown massively, making policy uncertainty a major driver of broad market movements. 🔳 75% of Democratic Supporters Oppose Data Center Construction Approximately 75% of Democratic supporters and around 50% of Republican supporters oppose new data center construction, driven by concerns over rising electricity costs and impacts on daily life. The Democratic surge is raising alarms that AI-related investments could face significant headwinds. 🔳 Data Center Construction Won’t Halt Easily Even if Democrats control Congress, President Trump retains veto power over legislation, making an immediate halt to data center construction unlikely. Given massive corporate capital expenditures, economic implications for the U.S., and competition with China in AI development, a substantial reduction in investment is considered improbable. ListItemIcon AI-Related Stocks’ Decline May Be an Overreaction The recent sell-off in AI-related stocks appears driven more by fears of policy shifts than actual reductions in capital spending. Once election results are finalized, negative factors may be fully priced in, potentially triggering a rebound in stock prices. ListItemIcon Semiconductor-Related Stocks: A Buying Opportunity Amid Declines AI data center construction and semiconductor demand are expected to grow over the medium to long term. Short-term price declines may present investment opportunities; however, companies like Kioxia, which benefited from memory price surges, face significant downside risks from falling memory prices and must be evaluated separately. ListItemIcon Strength of Japanese Semiconductor Equipment Makers Japanese firms such as Advantest and Tokyo Electron are more affected by production volumes than semiconductor price fluctuations. Even if U.S. investment slows, rising demand in China and elsewhere could support relatively resilient earnings. ListItemIcon Impact on Semiconductor Manufacturers Like TSMC A slowdown in data center investment may reduce production volumes for semiconductor manufacturers like TSMC. However, considering global AI demand, the decline is expected to be less severe than markets fear. ListItemIcon Falling Memory Prices Could Benefit Nintendo If AI data center investment slows and memory prices decline, companies like Nintendo—long burdened by high procurement costs—could benefit. While semiconductor-related stocks are sold off, rising demand for gaming-related stocks reflects this market expectation. ListItemIcon Potential for Renewable Energy Stocks The Democratic Party is seen as strongly supportive of renewable energy through subsidies and incentives, drawing buying interest in related stocks. However, concerns remain that renewable energy’s higher generation costs could contribute to rising energy prices and inflation. ListItemIcon Risks to Banking and Brokerage Stocks from Tighter Financial Regulation The Democratic Party tends to prioritize stronger financial regulation, potentially increasing restrictions on large M&A deals and financial transactions. Mega-banks and brokerage firms with high overseas exposure may face headwinds, contributing to their recent declines. ListItemIcon Impact of Iran Situation on Defense Stocks Regarding Iran after the midterm elections, President Trump’s statements have shifted, making future military action uncertain. If Democratic gains strengthen opposition to military action, defense-related stocks could face negative pressure. ListItemIcon Democratic Economic Policy and Inflation Risks If the Democrats pursue higher taxes on the wealthy and corporations while expanding support for low- and middle-income households, consumer spending could rise, increasing inflationary pressures. Further investment in renewable energy may also raise energy costs. ListItemIcon Historical Post-Midterm Stock Market Anomaly Historical analysis shows that the S&P 500 rose 100% of the time from midterm election day through the following year. However, this year’s unique factor—the market’s heavy concentration in AI-related companies—means past trends may not fully apply. ListItemIcon Possibility of Year-End Market ReboundThe sharp decline following the midterm elections is largely driven by short-term panic selling, and a rebound is possible once election results are finalized. However, tech stocks are expected to remain volatile, and a drop in the Nikkei Average below 60,000 cannot be ruled out. 🔳 Domestic consumption and retail-related stocks are promising investment targets As capital flows away from AI and semiconductor stocks, attention is turning to domestic companies expected to benefit from improved profitability through price increases. Retailers, restaurants, and leisure businesses with strong pricing power and loyal customer bases are seen as potential investment candidates. 🔳 Oriental Land’s pricing strategy Oriental Land is advancing its profitability through park ticket price hikes and has seen a recovery in its stock price. Its dedicated fan base enhances pricing power, and future expectations for its cruise business further support its valuation. 🔳 Focus on Fast Retailing and Saizeriya Uniqlo is expected to see improved profits from apparel price increases, while Saizeriya is praised for its pricing strength and large base of repeat customers. These companies face relatively limited direct exposure to AI investments or U.S. political developments, making them attractive alternative investment options. 🔳 Recovery in gaming and entertainment stocks Attention is focused on the recovery of Japanese companies with unique content, such as Nintendo, Sony, Konami, and Bandai Namco. Japanese firms’ intellectual property and brand strength provide competitive advantages in global markets and are viewed as key drivers of medium- to long-term growth. 海外市场で人気が高まる日本食関連企業にも注目。寿司チェーン、寿司ロボットメーカー、天ぷら粉などの食品関連企業は、日本独自の商品や技術を武器に海外需要を取り込んでおり、成長余地があると指摘した。 🔳 The focus of AI investment is shifting from hardware to software The future AI market is expected to shift from a hardware-centric focus—such as semiconductors and data centers—to software and enterprise services powered by AI. Particular attention is being paid to companies like Accenture that support AI adoption and cybersecurity firms. 🔳 Future investment strategy While the medium- to long-term growth outlook for AI and semiconductor markets remains intact, caution is advised regarding short-term price volatility. It is important not only to view the recent decline in tech stocks as an investment opportunity but also to broaden investment targets to include domestic stocks with profit improvement potential through price increases, Japanese companies with unique competitive advantages, and AI software-related firms.