AI boom makes 139-year-old cable maker Japan’s hottest stock
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Construction of the data centres, electricity supplies and communications networks needed for AI will require at least US$1 trillion of spending.
PHOTO: REUTERS
TOKYO – The global boom in artificial intelligence (AI) has turned an obscure 139-year-old Japanese company into a stock market star.
Fujikura, 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 per cent in 2024.
It will join the MSCI global standard indexes on Nov 25 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 (S$1.35 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 Mr 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 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 Mr Iijima.
The company boosted its operating income guidance earlier in November by 17 per cent to 104 billion yen (S$907 million) for the current fiscal year.
It gets over 70 per cent of its revenue overseas, with about 38 per cent coming from the US.
Global data centre capacity is expected to rise at an average rate of 33 per cent annually through 2030, according to McKinsey & Company.
“The area is still in the early stages of development,” said Mr 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.”
Mr Kazuhito Iijima, Fujikura’s chief financial officer, said demand for data centres has skyrocketed since around 2022 due to AI.
PHOTO: FUJIKURA
The company 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 current boom stands in stark contrast to 2020, when the company posted its first loss in more than a decade.
The Covid-19 pandemic and trade tensions between the US and China ate into Fujikura’s sales.
With Donald Trump returning to the White House in 2025, 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 US.
“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 Mr Iijima.
This will protect its business “even if new issues arise that are disadvantageous to imported materials”, he said.
The massive run-up in the shares has made the stock expensive.
Fujikura is trading at a price-to-earnings ratio of about 29, while those of its peers Sumitomo Electric Industries and Furukawa Electric are trading at 11.8 and 20 respectively.
Analysts are bullish on the company, with 10 buys, three holds and no sells.
Still, some think its rivals will offer better returns.
“There should be more upside for Furukawa and Sumitomo Electric, given the huge outperformance for Fujikura,” said Ortus Advisors head of Japan equity strategy Andrew Jackson.
After being surprised 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 won the backing of multiple billionaires, including Mr Sam Altman, Mr Jeff Bezos and Mr Bill Gates.
While the technology has not been proven to work for large-scale production of electricity, if and when it does, there will be a need for cables and wires.
Fujikura’s Mr Iijima said: “We hope that this will become a pillar of the industry from 2030.” BLOOMBERG
