The recent global surge in artificial intelligence has unexpectedly transformed Fujikura Ltd., a 139-year-old Japanese company that once operated largely under the radar, into a notable performer on the stock market. Recognized for its innovation, Fujikura has captured the attention of investors as the company’s stock skyrocketed, making it the top performer on the Nikkei 225 Stock Average, with shares soaring over 400% this year alone.
Fujikura’s remarkable ascent is particularly significant as it prepares to join the prestigious MSCI global standard indexes on November 25, marking its status as the only new addition from Japan, while simultaneously, eight other companies will exit the index. This milestone reflects the company’s reinvention and relevance in the rapidly evolving tech landscape.
Positioned as a quintessential ‘picks and shovels’ investment, Fujikura stands to benefit as technology firms and utilities substantially increase their investments in essential infrastructure to enable AI advancements. Industry analysts project that the construction of data centers, the necessary electricity supplies, and expansive communications networks to support AI initiatives will require a staggering investment of at least $1 trillion, according to an in-depth analysis by Bloomberg News. The speed of this industry’s growth has not only exceeded market expectations but has also caught Fujikura itself off guard.
“The demand for data centers has skyrocketed since around 2022,” stated Kazuhito Iijima, Fujikura’s chief financial officer, during an insightful interview. “Initially, we didn’t quite grasp the scale of it back then, but it has become abundantly clear this year that the entire surge is tied to the AI phenomenon.”
Fujikura’s expertise lies in the production of high-quality fiber optic cables, with a significant focus on innovation that allows their products to fit into tight spaces without necessitating additional tunneling. Apple Inc. is among its major clientele, confirming its position in the tech supply chain. “Our cables have some of the smallest diameters in the industry,” Iijima noted, emphasizing technological superiority.
The company raised its operating income guidance for the ongoing fiscal year by 17%, anticipating earnings of ¥104 billion ($674 million). An impressive 70% of its revenue is generated from international markets, with approximately 38% of that originating from the United States. McKinsey & Company forecasts that global data center capacity will experience an average growth rate of 33% annually through 2030, indicating robust demand ahead.
“The area is still in the early stages of development,” remarked Kazuhiro Sasaki, head of research at Phillip Securities Japan. “As the system’s scale expands and additional data is integrated, the total volume of data will undoubtedly increase, paving the way for ongoing growth in this sector.”
Fujikura’s legacy dates back to 1885, when founder Zenpachi Fujikura began crafting wires insulated with silk and cotton. Over the decades, the company has embraced Japan’s industrial growth by supplying cables for various sectors, including the automotive industry, utilities, and the iconic Shinkansen high-speed trains.
Such burgeoning success stands in stark contrast to 2020, when Fujikura experienced its first loss in over a decade due to the impact of the COVID-19 pandemic and escalating trade tensions between the US and China. As Donald Trump prepares for a potential return to the White House next year, Fujikura is proactively strategizing to mitigate the risk of tariffs affecting its largest market. To comply with the comprehensive Build America, Buy America Act, the company has implemented measures to ensure manufacturing is domestically sourced, reflecting a commitment to future resilience.
“We have just completed establishing a production base that complies with BABA standards, specifically for ultra-high-density optical fiber cables in the United States,” Iijima explained. This strategic move is designed to shield its operations “even if new challenges arise that disadvantage imported materials,” he added.
The dramatic increase in Fujikura’s stock price has led to a re-evaluation of its market standing. Currently, the company trades at a price-to-earnings ratio of approximately 29, a stark contrast to its competitors, such as [hotlink]Sumitomo Electric Industries[/hotlink] Ltd. and Furukawa Electric Co., which are valued at 11.8 and 20, respectively. Analysts maintain a positive outlook on Fujikura, evidenced by 10 buy ratings, 3 holds, and no sell recommendations. Nevertheless, some analysts suggest that its competitors may yield better future returns.
“Given Fujikura’s extraordinary performance, we believe there is more potential for growth with Furukawa and Sumitomo Electric,” stated Andrew Jackson, head of Japan equity strategy at Ortus Advisors Ptd Ltd.
In light of its unexpected success amid the AI boom, Fujikura has begun exploring what it believes could be the next significant opportunity: nuclear fusion. This groundbreaking technology, promising virtually limitless clean energy, has garnered interest and backing from several prominent billionaires, including Sam Altman, Jeff Bezos, and Bill Gates. While nuclear fusion has yet to demonstrate its viability for large-scale electricity production, the future demand for cables and wires in this field remains a tantalizing prospect.
“We hope that this burgeoning area will solidify its place in the industry by 2030 and beyond,” Iijima concluded, reflecting a forward-looking vision for the company’s role in emerging technologies.
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How does your role as CFO influence Fujikura’s approach to navigating international market risks?
**Interview with Kazuhito Iijima, CFO of Fujikura Ltd.**
**Host:** Welcome, Kazuhito Iijima, CFO of Fujikura Ltd. It’s great to have you with us today. Your company has seen a remarkable resurgence over this past year, with shares soaring over 400%. What do you attribute this phenomenal growth to?
**Iijima:** Thank you for having me. The growth can largely be attributed to the sudden surge in demand for data centers, which is closely tied to the advancements in artificial intelligence. Since around 2022, we’ve been observing a significant uptick in investments from technology firms and utilities looking to build the infrastructure necessary for AI development. This trend has exceeded not only our expectations but also those of the broader market.
**Host:** Fujikura is about to join the MSCI global standard indexes as the only new addition from Japan. How does this milestone reflect the company’s transformation?
**Iijima:** Joining the MSCI indexes is a significant recognition for us. It underscores our transformation and relevance in an ever-evolving technological landscape. It also positions us favorably in the eyes of global investors, highlighting our commitment to innovation and infrastructure development critical to AI advancements.
**Host:** You mentioned a projected $1 trillion investment into AI infrastructure. How is Fujikura strategically positioned to benefit from this trend?
**Iijima:** Fujikura operates as a ‘picks and shovels’ investment in the tech space. We specialize in high-quality fiber optic cables, which are essential for data centers and communication networks. As firms expand their operations, our products are vital for ensuring efficient data transfer and communication. We’re enhancing our capabilities to meet the rising demands by focusing on innovation that allows us to provide cutting-edge, space-efficient solutions.
**Host:** Fujikura has a rich history dating back to 1885. How are you balancing this legacy while moving toward future growth?
**Iijima:** Our legacy is incredibly important to us, and we’ve always embraced continual innovation. While we honour our 139-year history, we’re also adapting to current market needs by focusing on modern technologies. For instance, we recently established a production base in the US to comply with the Build America, Buy America Act, which enables us to remain competitive and resilient regardless of potential trade disruptions.
**Host:** Lastly, with your significant revenue coming from international markets, especially the US, how are you mitigating risks in this fluctuating geopolitical landscape?
**Iijima:** We’ve proactively implemented strategies to mitigate risks associated with tariffs and trade tensions. By ensuring part of our production is domestically sourced in the US, we aim to sustain our operations even amid challenges. Staying agile in our approach will help us navigate uncertainties while securing our market position and supporting our clients.
**Host:** Thank you for your insights, Kazuhito. It’s fascinating to see how Fujikura is positioning itself for future growth in the tech industry.
**Iijima:** Thank you! It’s an exciting time for us, and we look forward to what lies ahead.
