Activist fund: People walk past an electronic board displaying the numbers on the Tokyo Stock Exchange. Elliott’s investment strategy reflects rising shareholder activism, as the government puts pressure on firms to pay heed to investors’ perspectives. — AFP
TOKYO: The global boom in artificial intelligence (AI) has turned an obscure 139-year-old Japanese company into a stock market star.
Fujikura Ltd, which makes wire cabling for data centres, is the best performer on the Nikkei 225 Stock Average index, with its shares surging more than 400% this year.
It was due to join the MSCI global standard indexes yesterday as the sole addition from Japan while eight other companies from the country will be removed.
The firm is a classic “picks and shovels” investment as tech companies and utilities pour money into building out the necessary infrastructure to support AI.
Construction of the data centres, electricity supplies and communications networks needed for AI will require at least US$1 trillion of spending, according to an analysis by Bloomberg News. The rapid growth of the industry has surprised Fujikura itself.
“The demand for data centres has skyrocketed since around 2022,” said Kazuhito Iijima, Fujikura’s chief financial officer, in an interview. We didn’t quite understand it that well at that time, but it became clear this year that it was all about AI.”
Fujikura, which counts Apple Inc among its biggest customers, specialises in fibre optic cables. Its products have some of the smallest diameters in the industry, which allows them to be used in narrow spaces without the need for additional tunnelling, according to Iijima.
The company boosted its operating income guidance earlier this month by 17% to 104 billion yen for the current financial year. It gets over 70% of its revenue overseas, with about 38% coming from the United States.
Global data centre capacity is expected to rise at an average rate of 33% annually through 2030, according to McKinsey & Co.
“The area is still in the early stages of development,” said Kazuhiro Sasaki, head of research at Phillip Securities Japan.
“The amount of data will increase as the scale of the system becomes larger and more data is added, so this field itself should continue to grow.”
The firm traces its roots to 1885, when founder Zenpachi Fujikura started making wires insulated with silk and cotton.
Over the centuries, it grew with the country’s industrialisation, supplying cables for the burgeoning automotive industry, utilities and Japan’s bullet trains.
The boom stands in stark contrast to 2020, when the company posted its first loss in more than a decade. Covid and trade tensions between the United States and China ate into 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.
It has taken measures to comply with the Build America, Buy America Act (Baba), which requires that manufactured products and construction materials used in infrastructure projects are produced in the United States.
“We have just completed setting up a production base, which is Baba-compliant, for ultra high density optical fibre cables in the United States,” said Iijima.
This will protect business “even if new issues arise that are disadvantageous to imported materials”, he said.
The massive run-up in the shares made the stock expensive. Fujikura is trading at a price-to-earnings ratio of about 29, while those of its peers such as Sumitomo Electric Industries Ltd and Furukawa Electric Co are at 11.8 and 20, respectively. — Bloomberg
