Japan Machinery: Stocks Positioned Beyond Peak Cycle on AI Capex Tailwind

Goldman Sachs identifies a new peak cycle for Japan Machinery driven by AI-related capital expenditure. Key rating changes include upgrades for Keyence and THK, with a downgrade for SMC based on valuation and capital policy concerns.

Key Takeaways

• 1.The Japan Machinery sector is entering a new peak cycle driven by significant 'AI Capex' tailwinds, particularly in semiconductor and industrial automation equipment.
• 2.Focus has shifted from demand trends to supply capacity; companies with stable supply structures and procurement networks are better positioned to capture vertical demand growth.
• 3.Goldman Sachs upgraded Keyence to Buy and THK to Neutral, while downgrading SMC to Neutral due to uncertainties regarding capital allocation policies.

Table of Contents

• We believe AI Capex Supply-Demand Tightness Has Shifted to the Supply Side
• AI Capex is likely to continue for the time being; we expect you momentum to peak in FY3/27E to FY3/28E
• Whether or not companies possess supply capacity will become the focus point
• Our Forecasts and Views: Incorporating near-term earnings upside, broadly raising target prices
• Yaskawa Electric (6506.T): Expect early achievement of FY2/28 OP target; further re-rating from 1Q; Buy
• Keyence (6861.T): Progress on capital returns policy, and business structure evolution; upgrade to Buy
• THK (6481.T): Strong demand more than offsets market share concerns; upgrading from Sell to Neutral
• SMC (6273.T): Strong topline but uncertainty over margins/ROC and capital allocation policy remains; downgrade from Buy to Neutral
• Price Target Risks and Methodology

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