JPMorgan: Japan's MLCC Stocks Enter "Profit Validation Phase," October-December to Be Key Window

TL;DR

• Feedback from JPMorgan's roadshows in Hong Kong and Singapore in late June indicates that investor interest in Japanese MLCC and passive component stocks remains high, but valuation judgments have clearly diverged.
• Bulls still favor Murata, but significant capital is beginning to control risk by going long Murata while shorting Taiyo Yuden or TDK.
• Pushing share prices higher solely on AI server demand in the near term is becoming more difficult. The next key catalysts for validation will be earnings reports, high-end demand in the October-December period, and the 2027 price negotiations.

Feedback from JPMorgan's Asia roadshow for the electronic components industry, released on June 30, shows that after a sharp rally in Japanese MLCC and passive component stocks driven by AI server demand, institutional investors are increasingly divided on sector valuations.

From June 22 to 26, JPMorgan visited investors in Hong Kong and Singapore. Most meeting discussions focused on passive component manufacturers, especially MLCC-related companies including Murata Manufacturing, TDK, Taiyo Yuden, Nichicon, and Nippon Chemi-Con. Investors also focused on AI server chain related names such as Ibiden, Rohm, MinebeaMitsumi, Alps Alpine, and Hirose Electric. The report also noted a significant increase in hedge fund inquiries regarding potential short-selling targets.

The core change in this feedback is that the market is no longer just discussing "how much demand AI servers are generating," but has begun questioning whether this demand is sufficient to support the already significantly elevated stock prices.

Stock Prices Run First, Valuation Divergence Begins to Widen

Since April, the valuations of several Japanese electronic component stocks have been notably above their historical ranges. The report states that investors are currently divided into two main groups: one believes AI server demand is creating a new normal for growth, while the other thinks current stock prices represent overpricing.

Passive component companies like MLCC, aluminum electrolytic capacitors, and crystal devices have been the most closely watched sectors in this trading wave. As AI server power consumption increases and board design complexity rises, demand for high-capacity, high-reliability MLCCs has grown, rapidly accelerating market growth expectations for related manufacturers.

However, the rapid stock price increase has also blurred consensus. The report points out some investors believe that after the short-term price surge, it's difficult for the market to discern where true consensus expectations actually lie. In other words, strong demand is a consensus, but how much future growth is already priced into stocks has become a new point of divergence.

In terms of stock performance, from late March to mid-June, Murata rose approximately 35%, Taiyo Yuden rose about 50%, while the TOPIX index gained roughly 17% over the same period. Passive component stocks have significantly outperformed the broader market, becoming a relatively crowded group of assets in Japan's AI-related trading.

Notably, stocks like Taiyo Yuden, Nichicon, and Nippon Chemi-Con, despite their significant price increases, still have relatively low current-quarter profit levels. Therefore, many investors worry that if the April-June earnings fail to demonstrate synchronized improvements in orders, pricing, and profit margins, there could be downward pressure on stock prices after the earnings reports are released.

Murata Remains Core Position, Taiyo Yuden and TDK Become Hedging Tools

In terms of specific positioning, Murata remains the most easily held long position. This is because its high-end MLCC position is more established, its customer mix and product specifications better align with the logic of AI server demand upgrades, making it easier for long-term capital to view it as a core beneficiary.

However, with stock prices generally at high levels, investors are also using relative trades to control risk. The report shows that some early entrants have begun taking profits on Taiyo Yuden while pivoting to pair trades: long Murata, short Taiyo Yuden. Other investors continue to hold Murata while waiting for a pullback in Taiyo Yuden to re-enter.

This suggests that capital hasn't fully exited the MLCC sector but is shifting from "buying the whole sector" to "buying the leader, selling the high-beta names." Taiyo Yuden is considered a direct beneficiary of AI server MLCC demand and has shown stronger price elasticity in the earlier phase; but greater elasticity also means higher pressure to deliver on earnings. If order growth, price increases, or capacity utilization improvements fail to quickly translate into the profit statement, short-term capital is more likely to choose to realize gains.

TDK's position is more nuanced. The report states some investors view TDK as a latecomer in AI server MLCCs; however, the market also believes that supply-demand tightness for power inductors related to AI server power supplies, especially thin-film metal inductors, could drive prices higher. Additionally, TDK has potential for market share gains in LFP backup battery units (LFP BBU) and HDD heads.

Therefore, TDK can be seen both as a spillover beneficiary of the AI server chain and as a hedging tool in pair trades after its valuation has risen. The report mentions that many investors are employing the combination of long Murata and short TDK, indicating the market has begun repricing across different AI component names.

Similar divergences are also appearing in other electronic component stocks. Ibiden is still seen as a beneficiary of AI server substrate demand, but its stock price already partially reflects profit expectations for FY2030 or even beyond. Interest in Rohm is increasing due to the rising value of its Kioxia stake and a shortage of 80-100V Si-MOSFETs.

MinebeaMitsumi benefits from demand for server fan bearings and BBU protection modules, but its valuation is no longer cheap. Alps Alpine has become a target for some hedge funds seeking short-side opportunities.

Next Steps Depend on Earnings, Oct-Dec Demand, and 2027 Price Negotiations

JPMorgan is relatively restrained concerning near-term stock performance. The report believes that while MLCC-related stocks have risen significantly since April, analysts' earnings forecast revisions have been limited over the past three months. Therefore, during the July-September period, it is unlikely that expectations for AI server MLCCs alone will drive stock prices sharply higher; instead, these stocks are more likely to enter a range-bound trading phase.

The next real catalyst could emerge in the October-December period.

The report suggests that high-end MLCC demand for AI servers may become clearer in October-December. As 2027 price negotiations progress, if tightness in the MLCC supply chain is further exposed, price hike expectations will be easier to realize, reigniting stock momentum.

Beyond MLCCs, Nichicon and Nippon Chemi-Con are also being re-evaluated within the AI server power supply chain. Market focus is on whether these companies' price increases merely pass through rising aluminum costs, or if they can achieve more substantial price increases for higher-specification products. As server power architectures evolve towards 400V and 800V HV-DC, demand for long-life, high-reliability aluminum electrolytic capacitors and high-voltage components may increase.

This is the most crucial area requiring validation: AI server demand has been thoroughly discussed, but whether price increases can be realized, their magnitude, and their duration will directly determine whether this rally continues or enters a phase of valuation digestion.

Hedge funds beginning to search for short ideas doesn't necessarily mean Japanese passive component stocks have peaked immediately. More accurately, the market has moved from one-sidedly trading AI demand into a more nuanced phase of valuation and profit verification. Investors will continue to buy leaders with higher certainty while simultaneously identifying and hedging against names perceived as overvalued, facing profit realization shortfalls, or excessively driven by thematic momentum.

For Murata, the key is whether high-end MLCC demand can continue to support its leader premium. For Taiyo Yuden, the key is whether its profit statement can keep pace with its stock price elasticity. For TDK, the key is whether power inductors, LFP BBU, and HDD heads can provide new growth support.

This roadshow feedback reflects the real-time sentiment of some institutions and hedge funds, not formal earnings projections, nor can it be equated with overall market consensus. But it clearly reveals a shift: AI server demand has propelled Japanese passive component stocks to high levels. The next thing the market needs to see is no longer just how strong the demand narrative is, but whether earnings reports, orders, and price negotiations can support the stock prices that have already risen.