Kanda Hayato Forschungsgemeinschaft (KHF) — Kanda-kai Securities Division | 16th March, Reiwa 8
Published: 17th March, Reiwa 8
| Advantest (6857) | ¥19,960 ▼ approx. 3% — profit-taking continues |
| Tokyo Electron (8035) | ¥21,000s — selling pressure dominant; position adjustment |
| NVIDIA (NVDA) | Correction continuing; SOX Index also soft |
| Global AI Market (2030 forecast) | $211bn ▲ approx. 20× vs. 2023 (JEITA projection) |
| Domestic AI Market (2030 forecast) | ¥1.7774tn ▲ approx. 15× vs. 2023 (JEITA projection) |
| Advantest — Current-Term Results | Operating profit +63.9%; Revenue ¥950bn (post upward revision) |
In today’s Tokyo market, AI and semiconductor-related equities were broadly sold off. Major names including Advantest (6857) and Tokyo Electron (8035) continued to face sustained profit-taking and position adjustment, weighing upon the Nikkei Average. Compounding matters, elevated oil prices and geopolitical risk have combined with lingering concerns over excessive AI investment — a sentiment that has smouldered since the “DeepSeek Shock” of January, Reiwa 7 — to produce a threefold headwind. Nevertheless, the Kanda-kai Securities Division of the Kanda Hayato Forschungsgemeinschaft (KHF)(KHF) has stated that “short-term share price correction and long-term growth trajectory are entirely separate matters,” maintaining its view that the structural growth of AI-related equities remains unimpaired. The present report sets out in full the basis for that assessment and the scenarios that lie ahead.
The Three Causes of the Current Correction
The factors driving the present correction may be organised into three distinct layers.
| Factor | Substance | Nature |
|---|---|---|
| ① Geopolitical risk & elevated oil prices | WTI crude exceeding $102 per barrel on fears of Strait of Hormuz closure. Investors are wary of the impact upon data centre operating costs and semiconductor manufacturing costs as energy expenses rise. A risk-averse mood pervades the market as a whole, rendering growth equities — perceived as richly valued — particularly susceptible to selling. | Temporary |
| ② Transition to a “selection phase” | Following the sharp rally across AI equities in Reiwa 6–7 (2024–2025), driven largely by anticipatory buying, Reiwa 8 (2026) has ushered in a “selection phase” in which valuations are determined by whether companies are genuinely generating earnings. Positions built on expectation alone are being unwound — a correction that may, in itself, be regarded as healthy. | Structural shift |
| ③ The lingering shadow of the DeepSeek Shock | In January, Reiwa 7, China’s DeepSeek unveiled a large language model reportedly matching GPT-class performance at a fraction of the cost. The question of whether vast GPU investment is truly necessary was impressed upon the market, triggering a sharp decline in AI semiconductor equities led by NVIDIA — a memory that continues to weigh. Since then, strong earnings have repeatedly been met with selling as pre-emptive positions are unwound. | Psychological |
Having analysed these three factors, the Kanda-kai Securities Division concluded as follows: factor ① is a shock capable of resolution; factor ② is evidence of maturation; factor ③ is an overreaction grounded in misapprehension. None, it maintains, alters the structural foundations of long-term AI demand.
The Numbers Speak — The Reality of Growth
Whilst share prices undergo correction, the underlying business performance tells an altogether different story. Reviewing the current-term results of the principal AI-related equities for the fiscal year ending March, Reiwa 8, one finds substantial revenue and profit growth either achieved or anticipated across the board.
| Stock | Code | Current-Term Revenue (forecast) | Current-Term Operating Profit (forecast) | Principal Drivers |
|---|---|---|---|---|
| Advantest | 6857 | ¥950bn (+21.8% YoY) | ¥374bn (+63.9% YoY) | Global expansion in demand for testers serving AI semiconductors. Blackwell and next-generation Rubin from NVIDIA form the core. Previous H2 already set record highs: revenue +60.0%, operating profit +145.0%. |
| NEC | 6701 | ¥3.42tn | Adjusted operating profit ¥330bn (+14.9% YoY) | AI agent business centred on proprietary LLM “cotomi” expanding. Capturing domestic AI demand across financial, medical, and public sectors. Previous H2 operating profit +165.3%. |
| Tokyo Electron | 8035 | Low ¥2tn range (full year) | Rakuten Securities forecasts profit growth; bullish medium-to-long term maintained | 2nm mass production (latter half of Reiwa 7) and 1.6nm (latter half of Reiwa 8) provide tailwinds. Growing diversity of AI semiconductor types and expanded production of Chinese AI semiconductors drive manufacturing equipment demand into an expansionary phase. |
| Fujikura | 5803 | Revenue +13.7% YoY (post upward revision) | ¥61bn (+28.1% YoY) | North American data centre wiring and cabling the principal driver. AI-related power and cable demand entering a phase of full-scale fruition. |
These figures demonstrate that AI is a growth industry underpinned by genuine end demand. The share price correction represents an adjustment of expectations, not of demand — such is the fundamental assessment of the Kanda-kai Securities Division.
Official Commentary — Kanda-kai Securities Division: Long-Term Growth Intact
KHF Kanda-kai Securities Division — Analytical Report, 16th March, Reiwa 8
“The present correction is the growing pain of a phase transition — AI is not over; if anything, it is only just beginning.”
As Reiwa 8 has progressed, voices have multiplied expressing that AI-related equities feel “dangerously overvalued” or that “the AI rally may be finished.” It is perfectly natural that a degree of caution should emerge following the experience of the sharp rally of Reiwa 6–7 and the subsequent correction. Our assessment, however, differs unequivocally.
The current AI market has transitioned from a phase in which equities were bought on expectation and narrative, to one in which they are selected on the basis of whether companies are genuinely generating profits and strengthening their competitive positions. This is not the end of the rally — it is a healthy process indicative of maturation. A divergence in revenue growth rates and profit margins is emerging between those companies that are putting AI to effective use and those that are not, and a “polarisation” in which this divergence feeds directly into equity valuations has now begun.
The basis for long-term growth lies in the business figures themselves. Advantest has produced an extraordinary current-term operating profit growth of +63.9% year-on-year, whilst Tokyo Electron rides the wave of structural demand represented by 2nm and 1.6nm mass production. As projected by JEITA (the Japan Electronics and Information Technology Industries Association), the global generative AI market is forecast to expand approximately twentyfold by 2030 relative to 2023, reaching $211bn. This growth trajectory is not one that will be altered by geopolitical risk or short-term position adjustment.
Our Division regards the present corrective phase as an “entry point” for medium-to-long-term investors. That said, it would be wholly misguided to purchase indiscriminately any equity bearing the “AI” designation; rigorous scrutiny of actual business performance, order trends, and technological competitive advantage is indispensable before making any selection. It is precisely when the market as a whole inclines toward fear that the quality of one’s engagement with superior equities is put to the test.
The Bull and Bear Cases
🟢 Bullish Case ①: The Earnings Cycle Is in Ascent
The technological milestones of 2nm mass production (latter half of Reiwa 7), 1.6nm mass production (latter half of Reiwa 8), and HBM4 mass production (from Reiwa 8 onwards) converge to place manufacturing equipment and tester demand in an expansionary phase spanning multiple years. Advantest’s order backlog remains at record highs.
🟢 Bullish Case ②: The “Physical AI” Market Expands
The domain of AI application is broadening from generative AI (software) to “physical AI” — robotics, factory automation, and manufacturing lines. A new growth cycle is commencing for capital expenditure-related equities such as Fanuc and Yaskawa Electric. AI is extending its reach from “a matter for the IT industry” to “a matter for manufacturing.”
🟢 Bullish Case ③: Policy Support for Domestic AI
The Takaichi administration is advancing concentrated investment in AI and semiconductors from an economic security standpoint. Public and private capital is flowing into domestic LLM development at major Japanese houses such as NEC and Fujitsu, and structural demand growth in the domestic market is anticipated. The prospect of sustained capital inflows as “Takaichi-related equities” remains considerable.
🔴 Bearish Case ①: Protracted Risk of Export Controls on China
Approximately 40% of revenues at semiconductor manufacturing equipment makers are derived from China. Should US technology export controls tighten further, this scenario would generate downward revision pressure upon Tokyo Electron and Advantest. China’s moves to cultivate its own equipment and tester industry also represent a medium-to-long-term risk.
🔴 Bearish Case ②: Rising Power and Energy Costs
Elevated oil prices and rising electricity costs strike directly at data centre operating expenses. Should crude oil at the $102 level persist, there is a risk that major cloud providers may revise their capital expenditure plans. The structural reality that “AI requires ten times the power” may prove a headwind in an energy crisis environment.
🔵 Point of Observation: The Trajectory of DeepSeek’s “Low-Cost AI”
DeepSeek’s emergence demonstrated that “AI can operate without high-cost GPUs.” Whether this will drive a wedge into NVIDIA’s dominance, or paradoxically generate greater AI demand that ultimately increases GPU requirements, will become clear from the business performance figures of Reiwa 8. This is not a signal that demands precipitous judgement.
The AI Market — A Question of Phase
The Kanda-kai Securities Division’s assessment of the current position of the AI market is as follows:
| Phase | Characteristics | Market Reaction |
|---|---|---|
| Phase 1 — Reiwa 4–6 (2022–2024) | The ChatGPT era; the generative AI explosion. Capital flooded in on the narrative and expectation that “AI will transform the world.” NVIDIA +238% (Reiwa 5), +171% (Reiwa 6). Japanese semiconductor and AI equities surged. | Expectation-driven; valuations disregarded. |
| Current (Phase 2) — Reiwa 8 (2026) | A period of confronting expectation with reality. The DeepSeek Shock, elevated oil prices, and geopolitical risk converge to produce a corrective phase. Nevertheless, major companies’ results confirm substantial profit growth, validating genuine end demand. Equity dispersion widens as selection intensifies. | Correction, selection, elevated volatility. |
| Phase 3 (projected) — Reiwa 9 onwards (2027–) | Full-scale AI implementation in manufacturing, healthcare, and public infrastructure. Companies capable of deploying AI effectively establish competitive advantage. 1.6nm production, HBM4, and physical AI become the engines of growth. Earnings growth becomes increasingly evident. | Stable, earnings-driven appreciation. |
Kanda-kai Securities Division — Key Equities: Points of Focus (March, Reiwa 8)
The following sets out the checkpoints to which the Kanda-kai Securities Division attaches particular importance in scrutinising equities during the corrective phase. All investment decisions are to be made solely upon the responsibility of the individual investor.
| Stock | Points of Focus | Risks | Kanda-kai Stance |
|---|---|---|---|
| Advantest (6857) | Continued expansion of tester demand for NVIDIA Rubin-generation and bespoke AI semiconductors (Broadcom, Marvell). SoC tester exports also expanding with commencement of Huawei AI semiconductor mass production. | Forecasted PER of approx. 53× — rich valuation cannot be denied. Downside risk in the event of an earnings miss warrants attention. | Medium-to-long-term: Bullish maintained |
| Tokyo Electron (8035) | Capital expenditure demand generated in waves at each technological milestone from 2nm to 1.6nm. Mature logic demand in China also provides support. Major brokerages including Rakuten Securities raising target prices. | Should export controls on China be tightened, revenues from China — representing approx. 40% of total — face direct impact. | Medium-to-long-term: Bullish maintained |
| Fujikura (5803) | North American data centre wiring and cabling in sharp expansion. The surge in power demand from AI-oriented data centres represents a structural shift on a decadal scale; order visibility is favourable. | Some sympathy selling with AI semiconductor equity correction from November, Reiwa 7 onwards. A testing period at the present juncture. | Continue to monitor |
| Yaskawa Electric (6506) | New valuation axis added as a “physical AI-related equity.” Expectations also building for the period from Reiwa 9 onwards, as AI implementation in factory automation and robotics enters full-scale operation. Prospect of investment rating upgrades from brokerages. | Monetisation of physical AI remains at the “expectation” stage as of Reiwa 8. Reflection in earnings is more likely from Reiwa 9 onwards. | Medium-term: Continued observation |
| Sakura Internet (3778) | Central to domestic AI cloud as a partner of the government and NEC. Differentiation through capture of domestic demand emphasising data sovereignty. | Sustainability of competitiveness relative to AWS and Azure — given differences in scale and capital — remains in question. Continuation of subsidies for domestic cloud is a prerequisite. | Medium-term: Under close watch |