TL;DR

• JPMorgan's late June roadshow feedback in Hong Kong and Singapore shows that investors remain highly attentive to Japanese MLCC and passive components stocks, but valuation judgments have clearly diverged.
• Bulls still prefer Murata, but many funds are beginning to control risk by going long on Murata and shorting Taiyo Yuden or TDK.
• In the short term, relying solely on AI server demand to continue pushing up stock prices is becoming more difficult. The next key validation will depend on earnings reports, high-end demand from October to December, and pricing negotiations for 2027.

The feedback from JPMorgan's electronic components industry roadshow on June 30 highlights that, following a significant rise in Japanese MLCC and passive component stocks driven by AI server demand, institutional investors are increasingly divergent in their valuation opinions for the sector.

From June 22 to 26, JPMorgan visited investors in Hong Kong and Singapore. Most of the questions during these meetings focused on passive component manufacturers, particularly those related to MLCC, including Murata Manufacturing, TDK, Taiyo Yuden, Nichicon, and Nippon Chemi-Con. Investors also paid attention to companies related to the AI server supply chain, such as Ibiden, Rohm, MinebeaMitsumi, Alps Alpine, and Hirose Electric. The report also noted a noticeable increase in inquiries from hedge fund investors regarding potential shorting targets.

The most critical change in this feedback is that the market is no longer only discussing "how much demand AI servers are creating," but is starting to question whether this demand is sufficient to support the already significantly elevated stock prices.

Stock Prices Lead, Valuation Divergence Begins to Widen

Since April, the valuations of several Japanese electronic component stocks have been significantly above historical ranges. The report states that investors are currently mainly divided into two camps: one believes AI server demand is creating a new growth normal, while the other thinks the current stock prices resemble excessive pricing.

MLCC, electrolytic capacitors, and crystal devices are the most closely watched sectors in this round of trading. As the power consumption of AI servers increases and the complexity of board designs rises, the demand for high-capacity, high-reliability MLCCs has surged, rapidly heating market expectations for related manufacturers' growth.

However, the rapid rise in stock prices has also blurred consensus. The report points out that some investors believe that after a short-term surge, it has become difficult for the market to gauge where the true consensus expectations lie. In other words, strong demand has become a consensus, but how much future growth the stock prices actually reflect is becoming a new point of divergence.

From the stock performance standpoint, from the end of March to mid-June, Murata rose by approximately 35%, Taiyo Yuden by about 50%, while during the same period, TOPIX rose by about 17%. Passive component stocks have significantly outperformed the broader market and have become a relatively crowded asset class in Japan's AI trading.

Especially for Taiyo Yuden, Nichicon, and Nippon Chemi-Con, while stock prices have noticeably risen, the current quarter profit levels remain relatively low. Therefore, many investors are concerned that if the performance from April to June does not confirm that orders, prices, and profit margins improve in tandem, a pullback could occur post-earnings report.

Murata Remains the Core Position, Taiyo Yuden and TDK Serve as Hedging Tools

In terms of specific positions, Murata remains the most favorably held target by bulls. This is due to its more stable position in high-end MLCC, and its customer structure and product specifications better align with the upgraded demands of AI servers, making it easier for long-term funds to view it as a core beneficiary.

However, when stock prices are generally high, investors also start to control risk through relative trading. The report shows that some early investors have begun to lock in profits on Taiyo Yuden while shifting to long positions on Murata and short positions on Taiyo Yuden as a pair trade. Other investors continue to hold Murata, waiting to re-enter after a pullback in Taiyo Yuden.

This indicates that funds have not completely withdrawn from the MLCC sector but are shifting from a "buy the entire sector" approach to "buying leaders, selling flexibly." Taiyo Yuden is considered one of the direct beneficiaries of AI server MLCC demand, with previous stock prices showing stronger elasticity; however, greater elasticity also means there is a higher pressure for profit realization post-earnings. If order growth, price increases, or improvements in capacity utilization do not quickly translate to the profit statement, short-term funds are more likely to choose to realize profits.

TDK's position is more nuanced. The report states that some investors view TDK as a latecomer in AI server MLCC; however, the market simultaneously believes that the power inductors related to AI server power sources are facing tightening supply and demand, especially thin-film metal inductors, which are expected to drive prices upward. Additionally, TDK also has potential in increasing market share for lithium iron phosphate (LFP) backup battery units and HDD magnetic heads.

Therefore, TDK may be seen as either an indirect beneficiary of the AI server supply chain or become a hedging tool in pair trading after the valuation rise. The report mentions that many investors adopt a combination of going long on Murata and shorting TDK, indicating that the market has begun to reprice between different AI component targets.

Similar differentiations also appear within other electronic component stocks. Ibiden is still regarded as a beneficiary of AI server substrate demand, but its stock price has already partially reflected FY2030 or even longer-term profit expectations; Rohm's increasing focus comes from the increasing value of its Kioxia holdings and the 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 looking for short clues.

The Next Steps to Watch for Earnings Reports, Demand from October to December, and Pricing Negotiations for 2027

JPMorgan is relatively restrained about short-term stock price performance. The report believes that MLCC-related stocks have significantly risen since April, but in the past three months, analysts’ adjustments to earnings forecasts have been limited. Therefore, during the July to September period, the likelihood of relying solely on AI server MLCC expectations to continue significantly pushing stock prices up is low; related stocks are more likely to enter a period of range-bound fluctuations.

The real next round of catalysts may occur from October to December.

The report suggests that high-end MLCC demand for AI servers is likely to become clearer from October to December. As pricing negotiations for 2027 progress, if tensions in MLCC supply in the supply chain become more apparent, price increase expectations are more likely to materialize and help stock prices regain momentum.

Besides MLCC, Nichicon and Nippon Chemi-Con are also being re-evaluated within the AI server power supply chain. The market's focus is on whether the price increases for these companies merely transfer rising aluminum costs or if they can achieve larger price increases for higher-spec products. As server power architectures evolve towards 400V and 800V HV-DC, demand for long life, high reliability aluminum electrolytic capacitors and high voltage-related components may increase.

This is also where the current market needs the most verification: AI server demand has been fully discussed, but whether price increases can be realized, their magnitude, and how long they will last will directly determine whether this round of trends continues or enters a valuation digestion phase.

The search for short clues by hedge funds does not imply that Japanese passive component stocks are peaking immediately. More accurately, the market has shifted from one-sided trading based on AI demand to a more detailed phase of valuation and profit verification. Investors will continue to buy leading stocks with stronger certainty while also looking for those with overvalued stocks, insufficient profit realizations, or overly strong thematic drives to hedge.

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

This roadshow feedback reflects the real-time sentiment of certain institutions and hedge funds, not formal earnings forecasts, and cannot be equated with market consensus. However, it clearly reveals a change: AI server demand has pushed Japanese passive component stocks to high levels, and what the market is watching next is not just how strong the demand story is but whether earnings reports, orders, and pricing negotiations can support the already risen stock prices.

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