Investment trends are pointing towards the "Silicon Economy" as the most typical example! Japanese stock market bids farewell to the "value trap" label as funds flock to AI semiconductors.

Global institutional investors are reevaluating the Japanese stock market from a "traditional undervalued value market" to an "AI-driven growth investment market" - the Japanese stock market, which has long been seen by global investors as a value stock large market, is now attracting a large influx of growth investment funds into the AI semiconductor investment sector. At the same time, Japanese technology companies closely associated with AI computing infrastructure are climbing to the top of the market value rankings, surpassing dominant automobile manufacturers and telecommunications giants that have held the lead for decades. "We have been increasing our exposure to the Japanese market based on the strong profit growth prospects of Japanese companies," said Kei Takizawa, senior investment strategist at AllianceBernstein Japan, when discussing a strategy for investing in global innovative companies. He added that Japanese companies are playing an increasingly vital role in building global AI computing infrastructure. Since the beginning of this year, the Japanese stock market has been "decoupled" from the Japanese bond market and the yen exchange rate - with continued large-scale inflows of foreign capital driving Japanese stocks to soar and repeatedly reach historical highs, while Japanese bonds and the yen have been struggling. Companies like Kioxia, SoftBank, Socionext, Advantest, Tokyo Electron, Lasertec, Cisco Systems, Inc., Murata, and SunEdison, among others, which collectively hold high weights in the AI chip and semiconductor equipment sectors in the Nikkei 225, are considered the most important "narrative axis" contributing to the recent large-scale influx of foreign capital into the Japanese stock market, as well as the core contribution weight to the strong gains in the Nikkei 225 index itself. Global funds shifting from the "carbon-based old economy" to the "silicon-based new mainstream" This year, the so-called grand investment narrative of global funds in search of "silicon-based inflation, abandoning carbon-based" is essentially a capital shift from "carbon-based assets" that rely on population, resources, and linear economic growth such as traditional manufacturing, automobiles, consumer goods, real estate, and energy, towards the high-end manufacturing chain centered around silicon wafers related to AI computing infrastructure - such as AI GPU components, HBM/DRAM/NAND storage chips, advanced packaging, lithography machines, front-end semiconductor equipment, data center power chains, data center CPU components, optical interconnection/optical communication, and other "silicon-based assets." This is not just a narrative of chasing tech stocks, but a reevaluation of the "most core vehicle of future growth": whoever controls the AI computing infrastructure resources related to AI training/inference will receive higher valuation premiums, and the Japanese stock market is the most typical example. Last Friday, the Japanese semiconductor manufacturer Kioxia surpassed Toyota Motor Corp. Sponsored ADR to become the highest-valued company in Japan, highlighting the global AI frenzy reshaping the landscape of listed companies in Japan and the investment direction of the Japanese stock market. Kioxia's stock price soared 7.6% on Friday, pushing its market value to over 44 trillion yen (about $274 billion) just 18 months after its listing. Toyota closed the day with a market value of 43.8 trillion yen, having been surpassed briefly by SoftBank Group and losing the top spot in market value. The continued strong upward momentum of the AI chip and semiconductor equipment leaders in the Japanese stock market can be seen as a reevaluation trajectory of the AI computing power industry driven by the unprecedented demand for NVIDIA Corporation's AI GPUs spilling over. Compared to the US and Korea stock markets, which have also been dominated by the AI computing power craze in recent times, the uniqueness of the Japanese market lies in the fact that it does not have AI chip/DRAM storage chip superpowers like NVIDIA Corporation, AMD, Micron, Broadcom Inc., Alphabet Inc. Class C, SK Hynix, and Samsung, but has a significant presence of essential AI semiconductor assets deeply embedded in the AI computing power chain, such as Kioxia, Tokyo Electron, Advantest, Cisco Systems, Inc., Lasertec, Socionext, SoftBank, as well as MLCC giant Murata, SunEdison, and many others. Therefore, foreign capital generally regards Japan as the "second battlefield of the AI computing power infrastructure industry chain." In particular, Japanese semiconductor equipment and raw material companies play a crucial role in the equipment value chain related to core AI computing power infrastructure, such as the actinic mask inspection focus of Lasertec, which has seen its stock price skyrocket by 200% since 2025. Tokyo Electron, a Japan-based company, has the highest market share in the field of coaters/developers and is considered a strong competitor to Applied Materials in areas such as ALD, CVD, PVD, RTP, CMP, etching, and ion implantation equipment. The performance of NVIDIA Corporation and the strong performance dynamics of companies related to AI computing power clearly indicate that the global frenzy of AI computing infrastructure construction is far from over, and is expanding from AI GPUs/AI ASICs to data center CPUs, high-performance network infrastructure, enterprise-level HBM/DRAM/NAND storage, system-level server clusters, AI super-factories, and enterprise-level large-scale AI cloud computing systems. Morgan Stanley predicts that by 2028, nearly $3 trillion of AI-related infrastructure investment will flow through the global economy, with over 80% of the expenditure still ahead. From a value niche to a growth track: Toyota surrenders the crown, Japan's market value map enters the AI semiconductor era Due to Japan's weak economic growth and declining population, investors have historically classified Japanese stocks as undervalued value stocks. After 2023, with Warren Buffett, the former helm of Berkshire known as the "stock god," expanding his holdings in Japan's five super trading companies and the push for corporate governance reform led by the Tokyo Stock Exchange, global investment interest has reappeared. However, the attractiveness of this market is still primarily rooted in its long-term cheap valuation compared to Western stock markets. Today, high-growth Japanese technology companies closely associated with AI semiconductors/AI computing infrastructure are increasingly important in the global AI infrastructure field and the AI computing investment landscape, indicating a meaningful shift in the core investment narrative of the Japanese stock market. While this may mean that more global investors will allocate capital to the Japanese stock market in the coming years, it also highlights the risk of a significant correction if there is a major reversal in the trend of AI-driven investments - such as significant reductions in AI-related capital expenditures by North American tech giants due to the unclear path to AI revenue. As shown in the graph above, Toyota has surrendered the crown of market value - with the top spot in market value in Japan finally changing hands. Note: Data as of the end of 2005 and 2025, the latest data as of June 22. "We see an increasing interest from foreign investors in the growth potential of Japanese companies, which was relatively rare in the past," said Richard Kaye, co-head of Japanese equities strategy at Comgest Asset Management. He added that these clients include major pension funds from overseas markets. This change is clearly reflected in Japan's market value rankings. Memory chip manufacturer Kioxia surpassed Toyota for the first time this month to become the highest-valued company. SoftBank Group has also briefly surpassed Toyota, and other companies closely related to AI computing infrastructure are also among the market leaders in terms of market gains and market value. This signals a significant transformation; a decade ago, the top of the list and top market value positions were mostly held by automakers and a slew of telecommunications giants. "Japan's stock market image may shift from a market dominated by cyclical forces driven by manufacturing to an increasingly tech stock investment market defined by large-cap growth stocks, with AI-driven AI semiconductor-related companies leading this shift," said Jumpei Tanaka, head of investment strategy at Pictet Asset Management Japan Ltd. "This may lead global investors to view Japan as a market worth a higher allocation in AI computing power themes, and may attract further capital inflows." As shown in the graph above, Toyota Motor Corp. Sponsored ADR has dominated the Japanese market for over a decade - top companies in major developed markets ranked by market value. Price-to-earnings ratio (PER) also reflects the changing dynamics, as PER can provide insight into investors' consistent growth expectations. The forward 12-month PER of the "Core 30" large blue-chip stocks in the TOPIX index - companies with the largest market capitalization and deepest liquidity base - has long been lower than other large-cap and mid-cap stocks. In recent years, the overall PER of large blue-chip stocks has been at a higher level, consistently widening the valuation gap with smaller competitors, indicating that investors' confidence in the long-term performance prospects of Japan's leading companies is increasing. The market reevaluation behind growth is a double-edged sword: capital inflows, valuation lifts, and AI volatility risks The significant AI computing power investment opportunities in Japan are not without warnings. Since major AI computing infrastructure-related stocks are prone to frequent violent price fluctuations due to high leverage and overcrowded AI trading, market volatility may further increase in the future. According to Nikkei statistics, AI tech companies related to AI computing power account for over 40% of the weight of the top ten constituents in the Nikkei 225 index, which is why the Nikkei 225 index has significantly outperformed other benchmark indices in the Japanese stock market this year. As shown in the graph above, Japanese stock valuations have risen over the past decade - a comparison of long-term valuation dynamics between major developed markets, but still appear to be relatively undervalued compared to the US stock market. However, Japan's exposure to the AI computing trading theme is still far less concentrated than in the South Korean or Taiwanese stock markets, where a few AI computing power infrastructure-related chip superpowers dominate the market. Some investors believe that Japanese stocks are an attractive way to diversify from historically high-valued and highly concentrated US stocks with excessive AI exposure, while still benefiting from the global AI computing power theme uptrend. "Unlike the limited choice of AI themes in the Korean and Taiwanese markets - where funds are mostly concentrated in SK Hynix, Samsung, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, and Foxconn, Japan has 50 to 60 tech companies related to AI chip components/AI computing clusters," said Kay from Comgest. He added that many institutional investors, including large European pension funds, have not fully realized the breadth of the AI-related investment landscape in Japan, indicating that there is still room for further capital inflows into the Japanese stock market. Even traditional value investors with deep expertise in Japan are starting to change their views. First Eagle Investments recently increased its holdings in a Japanese IT services company, citing expectations that Japanese domestic companies will massively adopt AI intelligent bodies. Christian Heck, Global Value Investment Deputy Director at the renowned investment firm based in New York, stated that one of the investment funds he leads is surpassing historical focuses on Tokyo Stock Exchange-led corporate governance reforms and capital efficiency improvements. "Our conversations with Japanese companies now focus on where they are deploying capital in growth areas," he said.