Goldman Sachs believes the recent sell-off in Japan’s AI-related equities has created an attractive entry point for investors, arguing that a strong earnings season could reignite interest in the country’s semiconductor sector despite heightened market volatility, according to a report by Bloomberg.
Bruce Kirk, Goldman Sachs Japan’s chief equity strategist, said the sharp correction has reset expectations for many AI-linked companies, increasing the potential for positive earnings surprises to drive share price gains.
According to Kirk, provided geopolitical tensions do not deteriorate significantly, current valuations offer an appealing opportunity to build positions in selected AI beneficiaries. He added that Goldman continues to believe the long-term investment case for AI remains intact.
The comments come after semiconductor stocks across Japan, South Korea and Taiwan were caught up in a broad global retreat from AI-related investments. Investors have become increasingly cautious over elevated valuations, the sustainability of AI-driven capital spending, rising corporate leverage and intensifying competition from Chinese technology firms.
However, some institutional investors believe the correction may be approaching its end. Trading desks at several global investment banks have recently suggested that valuations are becoming more compelling following the sector’s decline.
Japan’s technology-heavy Nikkei 225 has fallen around 14% since reaching its peak in June after gaining roughly 44% earlier in the year. Several of the market’s strongest AI performers, including Kioxia Holdings and Furukawa Electric, have lost more than 40% of their value during the pullback.
Goldman expects investor attention to shift back towards company fundamentals as the Japanese earnings season gathers pace. A number of major semiconductor and chip equipment manufacturers, including Advantest, Tokyo Electron and Kioxia, are scheduled to report quarterly results in the coming days, providing an important test of sentiment towards the sector.
The investment bank forecasts first-quarter net profits for companies in the broader Topix index with February or March fiscal year-ends, excluding SoftBank Group, to increase by around 26% year-on-year. Goldman expects AI-related businesses to account for a significant share of that earnings growth.
For hedge funds, the outlook is complicated by elevated positioning. Goldman prime brokerage data indicate that both gross and net hedge fund exposure to Japanese equities remain above the 98th percentile of their respective five-year ranges, highlighting how crowded the market has become.
Such positioning could contribute to further volatility if earnings disappoint or geopolitical risks intensify. Nevertheless, Goldman argues that robust corporate results could provide the catalyst for investors to re-engage with Japan’s AI investment theme after the recent correction.
