Nomura’s top tech fund dismisses AI bubble fears, says stocks still have room to grow

Japan’s largest technology fund believes that AI stocks are not encountering a bubble and still have the capacity to grow. In a statement, Yasuyuki Fukuda, the chief portfolio manager of Nomura Asset Management’s Japanese Information Electronics equity fund, confirmed that the AI market is just entering its second act and is not in a bubble stage.

Still, concerns have been raised about the increased adoption of AI globally, which has pushed Nvidia’s market value to surpass the $5 trillion mark. This is the highest level any company has ever reached in history. Notably, Nvidia is a significant US-based chip firm.

On the other hand, with seven big tech firms now accounting for more than one-third of the S&P 500 index, investors are questioning whether this indicates overheating and suggests a possible burst of an asset bubble. 

Fukuda asserts that the AI market is not in a bubble stage 

Still, Fukuda maintains that the AI sector is not exhibiting bubble-like behavior. Under his leadership, the Nomura fund has performed exceptionally well, achieving a total return of approximately 49% as of November 6.

Contrastingly, the Topix index achieved a total return of 22%, while the Topix Electric Appliances Index returned 30% during the same period. Interestingly, sources noted that the fund’s performance surpassed that of the US Nasdaq Composite Index. 

Following this accomplishment, Fukuda commented on the matter. He acknowledged that the current technology stock environment differs from the dot-com crash 25 years ago, when he examined tech stocks from Europe and America.

Meanwhile, it is worth noting that firms that invested in telecommunications network infrastructure in the past were mainly startups that were not generating profits or cash flow. This situation made it difficult for such firms to raise funds, leading to a market crash.

In contrast to the past, the present-day world enables large companies with substantial financial resources, such as Google, Amazon, and Meta, to invest in the sector. As a result, these companies help to establish a more stable infrastructure.

Regarding AI growth, Fukuda revealed that investing in cloud computing systems and data centers marks the “first act” of a great story about the growth of AI. 

Therefore, according to him, the next phase will occur because traditional infrastructure companies, such as those in the power utilities and telecommunications sectors, will invest more.

Analysts noted that this trend will greatly benefit Japanese firms that manufacture electronic components, such as Furukawa Electric Co. 

On the other hand, since managing the portfolio in April 2011, Fukuda has increased the fund’s assets from ¥7.2 billion to ¥83.3 billion by the end of October. His efforts have positioned the fund as Japan’s largest electronics-focused investment fund.

Fukuda raises concerns about Japan’s recent performance

In September, top holdings included Fujikura Ltd., Sony Group Corp., SoftBank Group Corp., Tokyo Electron Ltd, and Furukawa Electric Co.

Fukuda admitted that among the best moves he made was to increase the fund’s stake in SoftBank Group in May 2024, when the share price was under ¥10,000. He explained that the stock hit an all-time closing high of more than ¥27,000 on October 29 but dropped to ¥21,300.

SoftBank Group holds a significant stake in Arm Holdings Plc, a UK-based semiconductor design company that develops processors for AI computing. Moreover, the company is involved in OpenAI’s Stargate initiative and plans to invest as much as $550 billion into the US as part of a trade deal with Donald Trump.

However, Fukuda warned that while a broad rally across the stock market would be beneficial, if gains come from just a few stocks, such as those in the US S&P 500 Index, they could be at risk.

He also pointed out that Japan’s recent performance has been troubling, noting that a few companies, such as SoftBank Group Inc., Advantest Corp., and Fast Retailing Co., were responsible for the majority of the increases in the Nikkei 225 over the past few months.

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