Goldman Sachs Japan Co. says a sharp selloff in Japan’s artificial intelligence-related stocks has created a buying opportunity, arguing that strong earnings could revive investor appetite for semiconductor shares.
Chief Japan equity strategist Bruce Kirk said the correction has lowered the bar for earnings to impress investors, leaving many AI-linked shares at levels where strong results could have a bigger impact on share prices.
“As long as you don’t think there’s going to be a substantial deterioration of the geopolitical situation, this looks like a good level to be adding to certain positions,” he said in an interview this week. “We don’t think the AI story is broken.”
The bullish call comes as a global selloff in semiconductor shares has swept through major AI beneficiaries across Japan, South Korea and Taiwan, as investors question whether lofty valuations and the AI investment boom can be sustained. Concerns over crowded positioning, rising corporate debt and growing competition from Chinese rivals have also weighed on sentiment.
Some Wall Street traders say the global unwind in AI momentum trades may be nearing an end. UBS’ trading desk said last week that the selloff could be close to running its course, while Bank of America Corp.’s trading desk urged clients to buy US momentum stocks, arguing valuations have become attractive.
After rallying about 44% through its June peak this year, Japan’s tech-heavy Nikkei 225 has fallen 14%. Some of the market’s biggest winners including Kioxia Holdings Corp. and Furukawa Electric Co. have slumped at least 40% over the same period.
Still, Kirk expects investors’ focus to shift back to fundamentals. “Ultimately, it’s going to come down to earnings,” he said. “A strong set of numbers should allow investors to refocus on the AI earnings story at significantly lower levels versus the end of June.”
Japan’s earnings season shifts into full swing this week, with heavyweight chip suppliers including Advantest Corp., Tokyo Electron Ltd. and Kioxia set to report first-quarter results.
The market estimates first-quarter net profits at companies in the broader Topix index with February or March fiscal year-ends, excluding the more volatile SoftBank Group Corp., will rise about 26% from a year earlier, with a significant share of the earnings growth coming from AI-related companies, according to Goldman.
That said, Kirk expects volatility to persist in the near term as investor positioning remains crowded. Goldman prime brokerage data show hedge funds’ gross and net exposure to Japan as a percentage of total positioning are both above the 98th percentile of their five-year ranges, a very high level historically.
The brokerage last week also raised its 12-month view on the Topix gauge to reflect weaker yen assumptions. The Japanese currency is trading near a four-decade low against the dollar, boosting exporters’ earnings.
This article was generated from an automated news agency feed without modifications to text.
