Chip Startup Rides AI Frenzy to Become Top Performing Topix Stock

(Bloomberg) — Shares of a small Japanese chip design company have risen fivefold since it listed in October, boosted by expectations of a boom in demand for artificial intelligence-driven silicon.

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Socionext Inc. has jumped more than 260% this year, with its market value peaking at around 957 billion yen ($6.7 billion), making it the best performing stock in the world. Topix index. The rise is part of a global rally in AI-related semiconductor stocks, highlighted by the surprisingly upbeat outlook for Nvidia Corp. in May.

The Yokohama-based company, which was founded by merging the system-on-chip (SOC) divisions of Fujitsu Semiconductor Ltd. and Panasonic Holdings Corp. in 2015, develops custom modules for consumer, automotive and industrial clients.

“It’s pretty much the only publicly traded Japanese company that covers a single area of ​​custom SOC,” said Rina Oshimo, strategist at Okasan Securities. Because Socionext develops and produces chips only after receiving orders, its business model is fundamentally different from that of industry leaders Nvidia and Advanced Micro Devices Inc., she added.

Socionext is developing SOCs for use in electric vehicles, smart devices and data centers, according to its website. The company debuted on the Tokyo Stock Exchange in October, with shares jumping 15% on its debut.

“He is involved in an area, system-on-chip design, which we believe has very significant growth potential in autonomous vehicles, mobile technologies, 5G and potentially 6G,” said Richard Aston, portfolio manager of CC Japan Income & Growth Trust plc., which owns shares of the company.

The fund views the business as a long-term investment. “Management is also focused on paying a dividend and growing that dividend over time,” Aston added.

The meteoric rise has deepened in recent days as the company was first downgraded on Thursday by SMBC Nikko, which said the market rally for fast-growing companies seemed overdone. The stock plunged 18% on Thursday, its biggest drop on record. Socionext is covered by eight analysts, with seven buys, one hold and zero sells, according to data compiled by Bloomberg.

“The earnings outlook is promising and it holds a unique position in the industry,” said Tim Morse, analyst at Asymmetric Advisors. However, its rise may have been too fast and “we wouldn’t be surprised to see further profit taking in both the sector and the name for now.”

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