Who Are Japan's Hidden Champions in the Stock Market? Nomura Reveals Japan's 'Shadow Companies' and Names Four AI Supply Chain Dark Horses

In the AI industry supply chain, the United States centers on NVIDIA (NVDA-US), while Taiwan revolves around the 'national guardian' TSMC (2330-TW) (TSM-US). Mitsunari Konno, co-manager of the Nomura Fund (Ireland Series) - Japan Strategic Value Fund, points out that although Japan may not be as prominent as the U.S. in developing large language models (LLMs), it possesses a group of indispensable 'shadow companies' (Enabling Technology)—known to Taiwanese investors as 'hidden champions'—in the hardware and materials sectors that underpin global AI computing power. He also reveals the four AI supply chain dark horses currently held by the fund.

Konno analyzes that while the world focuses on NVIDIA or TSMC, Japanese companies are providing the most critical support behind the scenes. He lists several 'shadow companies' that are key holdings in the JSV fund:

TDK and Taiyo Yuden: Produce multilayer ceramic capacitors (MLCCs) essential for AI data centers, which are extremely power-intensive and require highly precise environments.

Sumitomo Electric: As a major cable manufacturer, its fiber-optic communication equipment is the lifeline for high-speed data transmission in data centers.

Resonac (formerly Showa Denko): Supplies critical chemical materials and consumables used in semiconductor manufacturing processes.

Sony: Beyond its entertainment business, its technological leadership in image sensors (CIS) makes it a core component for future AI interactions with the real world, such as in robotics and autonomous vehicles.

Konno reveals that when NVIDIA CEO Jensen Huang visited Japan, he dined with the CEOs of several leading Japanese companies, including TDK and Taiyo Yuden. Although the JSV fund temporarily reduced its positions in AI semiconductors in June due to overvaluation, it has since taken advantage of recent market corrections to buy back these 'Jensen Huang dinner stocks'—companies with long-term growth potential and now more reasonable valuations.

Konno's investment philosophy emphasizes that value investing should not merely mean buying 'cheap stocks,' but rather combining 'valuation correction' with 'corporate value growth.' He breaks down value into three components: asset value, earnings value, and franchise value (patent value), with the latter being the key differentiator that enables a company to stand out in competition.

To avoid falling into a 'value trap'—buying low-priced stocks with no growth potential—Konno stresses that companies must demonstrate 'change.' This change could stem from enhanced shareholder returns or improved profitability. For example, Toyota Motor (Toyota) has not only benefited from the resurgence in hybrid vehicle demand but has also actively unwound cross-shareholdings within its group and launched a 3.6 trillion yen share buyback program. This renewed focus on shareholder returns is a powerful driver pushing the stock price back toward its intrinsic value.

Finally, Konno observes that Japanese investor behavior is also changing. The once-famous 'Mrs. Watanabe' (retail forex traders) are now shifting their attention to the stock market. With the Japanese government promoting NISA (the tax-free small investment scheme), more and more retail investors are entering the market through ETFs or index funds. Unlike investors in Taiwan or South Korea, Japanese retail investors tend to avoid high leverage (margin trading) and prefer long-term holding, providing a relatively stable capital base for Japanese equities.

Konno concludes that driven by Japan's structural economic reforms and the AI manufacturing boom, the Japanese stock market is no longer the stagnant pool it once was, but rather a fertile investment ground offering both stable returns and technological breakthrough momentum.