The global boom in artificial intelligence has turned an obscure 139-year-old Japanese company into a stock market star.
Fujikura Co., Ltd., which makes wired cables for data centers, is the best-performing company on the Nikkei 225 average stock index, with its shares rising more than 400% this year. It will join the benchmark MSCI world indices on November 25 as the only addition from Japan while eight other companies will be removed from the country.
The company is a classic “pick and shovel” investment in which technology and utility companies pour money into building the infrastructure needed to support artificial intelligence. It will require building at least the data centers, electricity supplies, and communications networks needed for artificial intelligence 1 trillion dollars of spending, according to a Bloomberg News analysis. The rapid growth of this industry has surprised Fujikura herself.
“Demand for data centers has risen dramatically since around 2022,” Kazuhito Iijima, Fujikura’s chief financial officer, said in an interview. “We didn’t understand it very well at the time, but it’s become clear this year that it’s all about artificial intelligence.”
Fujikura, which counts Apple among its biggest customers, specializes in fiber-optic cables. Its products feature some of the smallest diameters in the industry, allowing them to be used in tight spaces without the need for additional tunneling, according to Iijima.
The company boosted operating income guidance earlier this month by 17% to 104 billion yen ($674 million) for the current fiscal year. It happens more 70% of its revenue is overseas, with about 38% coming from the United States. Global data center capacity is expected to rise at an average rate of 33% annually through 2030, according to McKinsey & Company.
“The area is still in the early stages of development,” said Kazuhiro Sasaki, head of research at Phillip Securities in Japan. “The amount of data will increase as the system gets larger and more data is added, so this same area should continue to grow.”
Company traces its roots Until 1885, when founder Zenpachi Fujikura began manufacturing insulated wire with silk and cotton. Over the centuries, it grew as the country’s industry advanced, supplying cables for Japan’s booming automobile industry, utilities and high-speed trains.
The current boom stands in stark contrast to 2020, when the company posted its first loss in more than a decade. The Covid pandemic and trade tensions between the US and China have eroded Fujikura’s sales. With Donald Trump returning to the White House next year, the company is determined to avoid the threat of tariffs in its largest market. We have taken action to comply with the Build America, Buy America principle representsWhich requires that manufactured products and construction materials used in infrastructure projects be produced in the United States.
“We have just completed establishing a BABA-compliant production base for ultra-high-density fiber optic cables in the United States,” Iijima said. This will protect its business “even if new problems arise that harm imported materials,” he said.
The massive rise in stocks made the stock price expensive. Fujikura trades at a price-to-earnings ratio of around 29 while its peers such as (hotlink)Sumitomo Electric Industries(/hotlink) Ltd. and Furukawa Electric Co., Ltd. At 11.8 and 20 respectively. Analysts are bullish on the company with 10 Buys, 3 Holds and 0 Sells. However, some believe that its competitors will offer better returns.
“There should be more upside for Furukawa and Sumitomo Electric given Fujikura’s tremendous performance,” said Andrew Jackson, head of Japan equity strategy at Ortus Advisors Ptd Ltd.
Taken aback by the AI boom, the company says it has already identified the next big opportunity: nuclear fusion. The prospect of theoretically limitless clean energy has been championed by many billionaires, including Sam Altman, Jeff Bezos, and Bill Gates. Although this technology has not proven successful in producing electricity on a large scale, if it did, cables and wires would be needed.
“We hope this will become one of the pillars of the industry from 2030 onward,” Iijima said.
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