Summary of Key Points
Nomura Securities has raised its target price for Kioxi Holdings to 126,000 yen while maintaining a buy rating. The main reasons for this are the higher-than-expected increase in NAND flash memory prices due to supply shortages and the alleviation of concerns regarding US AI export restrictions. However, Kioxi's stock price has plummeted recently (down 51% from its peak last month, with a market value reduction of 29.5 trillion yen) as investors are worried about the overheating of the AI sector. Analysts remain optimistic about a 118% return on investment for the company over the next year and expect passive capital to flow in due to the adjustment of the TOPIX index in October. Nevertheless, retail investors' leveraged positions could exacerbate the risk of further declines. Additionally, there is a disagreement between Nomura and other institutions regarding the trend of NAND prices.
1. Two Key Reasons for Nomura's Raised Rating: Surprising Storage Price Increases + Alleviated AI Restrictions Concerns
Nomura's optimism about Kioxi is straightforward:
- Surprising Increase in Storage Chip Prices: The price of NAND flash memory (used in smartphones and computers) has been rising sharply due to insufficient supply. Nomura has raised its price increase forecast from 65% for April-June to 70%, and from 20% to 25% for July-September. They cite data from Taiwanese manufacturer ADATA as evidence: ADATA's SSD sales increased by 87% month-on-month, and management indicates that NAND contract prices are expected to rise another 35%-40% in July-September, indicating strong demand.
- Alleviated AI Export Restrictions: Previously, US restrictions on the export of advanced AI models caused concern that AI-related storage demand would be affected. However, with the full public release of OpenAI's GPT-5.6, these concerns have eased, and expectations for storage product demand from the AI sector have become more positive, benefiting Kioxi as a NAND supplier.
Based on these factors, Nomura has raised its profit forecasts for Kioxi: operating profit is expected to increase from 7 trillion yen in fiscal year 2027 to 7.5 trillion yen, and from 9.8 trillion yen to 10.7 trillion yen in fiscal year 2028. The target price is calculated by multiplying the projected free cash flow for 2028 (about 6.9 trillion yen) by ten.
2. Stock Price Plunge: Excessive Growth in the AI Sector, Now Adjusting
Kioxi's stock price soared during the AI boom, with an annual increase of over 600% in mid-June this year. However, investors have recently started to question whether the gains in AI-related stocks were excessive. As a result, Kioxi's stock price dropped by 14% on Friday morning in Tokyo, falling 51% from its peak last month, resulting in a market value reduction of 29.5 trillion yen (equivalent to approximately 1.4 trillion yuan). In simple terms, this is a correction after excessive growth as the market adjusts to the previous overheated sentiment.
3. Analysts Remain Optimistic: 118% Return on Investment Expected + Passive Capital to Enter the Market
Despite the stock price drop, analysts remain positive about Kioxi:
- 118% Return on Investment Over the Next Year: Analysts predict that even with the current decline, Kioxi's stock price could still increase by 118% in the coming year.
- Passive Capital to Enter the Market: The TOPIX index will be adjusted in October, and funds that track the index (passive funds) are required to buy newly included stocks. If Kioxi is included or its weight increases, these funds will be forced to purchase Kioxi's shares, potentially boosting the stock price.
4. Potential Risk: Retail Investors' Leveraged Positions Could Intensify the Decline
Many retail investors in Japan trade on margin (using borrowed money). If the stock price continues to fall, they may be forced to sell their shares to cover their losses. The more people sell, the sharper the decline, creating a vicious cycle. This is the biggest short-term risk Kioxi currently faces.
5. Disagreement Among Institutions: Who Really Determines NAND Price Trends?
Nomura believes that NAND prices will continue to rise, but another institution, TrendForce, previously predicted that demand for consumer electronics (such as smartphones and computers) would be weak, leading to lower NAND prices in April-June this year. The two views are completely opposite. Nomura uses ADATA's sales data to support its position, but TrendForce's opinion cannot be ignored; if consumer electronics demand remains weak, it could affect NAND prices and Kioxi's performance.
Overall, Kioxi's fundamentals (storage prices and AI demand) seem solid, but the stock price is currently adjusting due to overheating, and there is also the risk associated with retail investors' leveraged positions. Investors need to balance the long-term positives with short-term volatility.