Japanese Chip Sector’s Earnings Show AI Appetite, Auto Slump

Artificial intelligence fueled a stronger-than-expected earnings season for Japan’s tech sector, with surging data-center demand prompting chipmakers and equipment suppliers to raise forecasts.

With most companies in the MSCI Japan Information Technology Index having reported, more than three-quarters beat analyst estimates, among the highest in the broader MSCI Japan Index. Profit across the index rose 35%, with Advantest Corp. among the biggest contributors, according to data compiled by Bloomberg.

While the wave of upbeat guidance from leading suppliers and renewed government support are fueling momentum in Japan’s chip revival, the earnings season also highlighted a widening divide in the global chip industry: AI-driven demand continues to propel profits, though suppliers to the automotive industry continue to struggle. 

Tokyo Electron Ltd. raised its full-year operating profit forecast, with analysts expecting strong demand for chip production gear to continue through next year on strong capital spending by chipmakers. The outlook for 2026 also improved, with Berenberg analyst Tammy Qiu noting that the company expects wafer fabrication equipment spending to reach a record high as DRAM and NAND investments accelerate. 

Rising chip complexity is also expected to boost demand for its equipment, Bloomberg Intelligence analysts Masahiro Wakasugi and Takumi Okano said. Demand from DRAM and NAND chip customers — including SK Hynix Inc. and Samsung Electronics Co. — is projected to rise next fiscal year as data centers expand capacity, they added. The company holds about 90% of the market for tools for photoresist coating and development of chip wafers.

Advantest raised its full-year operating profit forecast by 25% to ¥374 billion . Growing use of high-bandwidth memory chips is sustaining strong demand for its high-end chip testing gear. The Nvidia Corp. supplier’s global share of the $1.9 billion memory chip testing market increased 7 percentage points to 63% in its latest fiscal year from the previous year, according to a statement in April.

Raised guidance in its midterm plan reflects “robust AI-related demand, enhanced supply capabilities and market-share expansion,” Advantest Chief Executive Officer Douglas Lefever said in an earnings briefing. 

Iwai Cosmo Securities senior analyst Kazuyoshi Saito noted the upbeat tone, saying Advantest’s management sounded confident that sales will exceed ¥1 trillion next fiscal year.

A broader lift from AI is spreading beyond AI-specific high bandwidth memory chips to mainstream DRAM and NAND, fueling demand for related materials and equipment. Appetite for AI GPUs remains strong and could strengthen further into 2026, BI’s Wakasugi said in an interview.

“The era of AI has arrived,” Tokyo Electron CEO Toshiki Kawai said in an earnings call, adding that strong AI-server demand and chip innovation essential for AI servers will be “powerful drivers of continued, dramatic growth of investment for leading-edge semiconductors, with double-digit growth expected to continue beyond next year.”

Shares of Advantest jumped 22% after it reported earnings for the biggest gain on record, while Tokyo Electron rose as much as 8.9%. Both boosted full-year guidance.

Government Support

Government backing and sustained AI investment are reinforcing optimism across the nation’s tech sector. Japan has allocated about ¥5.7 trillion since 2021 to revive its chip industry, according to the Ministry of Economy, Trade and Industry. Lawmakers aim to secure around ¥1 trillion annually to sustain support for chip and AI development.

AI stocks aren’t in a bubble and there’s room for further gains, said Yasuyuki Fukuda, chief portfolio manager of Nomura Asset Management’s Japanese Information Electronics Equity Fund. The market is “just entering its second act.” 

By contrast, demand for automotive and industrial semiconductors has yet to rebound.

Renesas Electronics Corp. shares slumped as much as 8%, the steepest drop in four months, after reporting results that pointed to a slower recovery and rising competition from cheaper power chips. Rohm Co. also dropped after it forecast full-year operating profit of ¥5 billion, less than half of analysts estimates and implying a second-half loss. Resonac Holdings Corp. posted a quarterly operating loss for the first time since 2023 amid weaker demand from sluggish auto market.

Rohm expects automotive-related revenue from customers to decline in the final quarter of the fiscal year, President Katsumi Azuma said at a press briefing last Friday. The company sees the automotive-related market recovering next fiscal year, Azuma said.

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