The unexpected rise of artificial intelligence has catapulted an otherwise lesser-known Japanese company into the limelight of the stock market.
Fujikura Ltd., a firm that specializes in wire cabling for data centers, has become the standout performer on the Nikkei 225 Stock Average. This year alone, its shares have skyrocketed by over 400%. Come November 25th, it will be the only company from Japan to be added to the MSCI global standard indexes, with eight other Japanese firms being dropped.
Being a ‘picks and shovels’ kind of investment, Fujikura is reaping the benefits as tech companies and utilities ramp up the infrastructure necessary for supporting AI. The demand for constructing data centers, ensuring stable electricity supplies, and building robust communication networks is anticipated to require at least $1 trillion in spending, reports Bloomberg News. The growth seen in this sector is even more than Fujikura had anticipated.
Kazuhito Iijima, the company’s Chief Financial Officer, noted in an interview, “We’ve observed a dramatic increase in demand for data centers since around 2022. Initially, we didn’t have full clarity on this trend, but it became apparent this year that AI was the driving force.”
Fujikura, known for serving tech giant Apple Inc. among its major clients, excels in producing fiber optic cables. What sets these cables apart is their incredibly small diameter, making them ideal for tight spaces without requiring extensive tunneling, according to Iijima.
Just this month, the company revised its operating income forecasts upwards by 17%, anticipating ¥104 billion ($674 million) for this fiscal year. Impressively, over 70% of Fujikura’s revenue comes from overseas markets, including about 38% from the U.S. According to McKinsey & Company, global data center capacity is projected to grow an average of 33% annually until 2030.
Kazuhiro Sasaki, head of research at Phillip Securities Japan, commented on the burgeoning sector, “We’re still in the early stages. As systems expand and more data is added, the industry’s growth should sustain.”
Tracing its origins back to 1885, Fujikura has evolved from crafting wires insulated with silk and cotton by founder Zenpachi Fujikura to supplying cables for Japan’s growing automotive industry, utilities, and the iconic bullet trains over the years.
Contrast this boom with 2020, when Fujikura recorded its first loss in over a decade, primarily due to the pandemic and trade issues between the U.S. and China. With the possibility of Donald Trump returning to the White House, safeguarding against tariffs in its largest market is a priority. In response, Fujikura has aligned with the Build America, Buy America Act, ensuring its products meet U.S. origins requirements.
“We’ve just established a production base in the U.S. that’s compliant with BABA regulations to produce ultra high-density optical fiber cables,” Iijima shared. He emphasized this would shield their business “even if new challenges arise that disadvantage imported materials.”
Naturally, such a surge in shares has resulted in the stock being pricey. At a price-to-earnings ratio of about 29, Fujikura is valued higher than peers like Sumitomo Electric Industries Ltd. and Furukawa Electric Co., which trade at 11.8 and 20, respectively. Analysts remain optimistic about Fujikura with 10 endorsing buys, 3 suggesting holds, and none recommending sells, though some advise that its competitors might yield better returns.
Andrew Jackson, head of Japan equity strategy at Ortus Advisors Ptd Ltd., remarked, “Furukawa and Sumitomo Electric potentially offer more upside given Fujikura’s significant outperformance.”
Positioned to navigate post-AI opportunities, Fujikura has already set its eyes on the upcoming nuclear fusion market. With backing from billionaire investors like Sam Altman, Jeff Bezos, and Bill Gates, the technology promises endless clean energy, though it hasn’t yet proven itself viable for large-scale electricity production. When it does, there will undoubtedly be a call for more cables and wires.
“We anticipate this sector will become a cornerstone of our industry from 2030 onward,” predicted Iijima.
