Japan Equity Strategy: Sho-Time: Japan Summit 2026 Feedback

Research evidence excerpt

Japan Equity Strategy: Sho-Time: Japan Summit 2026 Feedback

IdeaMseveral years, valuations have tended to stretch alongside successive upward revisions to

earnings guidance; (3) AI-related investment, particularly by hyperscalers, continues to

accelerate; and (4) unlike the unprofitable companies of the IT bubble era, today’s

hyperscalers driving AI investment are highly profitable and carry low leverage.

At the same time, several investors pointed out that simply “buying AI” may be risky given

the possibility that positioning has become increasingly crowded. While maintaining AI as

a core theme, diversification into adjacent themes remains important. From a theme

rotation perspective, investors highlighted laggards such as robotics, defense & space, and

next-generation power sources, all of which had previously rallied alongside AI-related

names, as areas worth watching.

Exhibit 2: Hyperscalers’ Capex-to-Sales Ratios

Note: Note: Hyperscalers include AMZN, GOOGL, META, MSFT, and ORCL, and are excluded from other sector classifications. Estimates for

leases/finance leases cover only MSFT and ORCL. R1000 also excludes the real estate and financial sectors.

Source: Factset, Morgan Stanley Research

Exhibit 3: Median Forward P/E of Stocks Linked to the 17 Strategic Sectors Under the

Takaichi Administration

AI Infrastructure & Advanced

Semiconductors

Robotics & Industrial Automation

28.00 Defense & Space

Next-Gen Power & Grid Infrastructure

Next-Gen Communications Infrastructure

Advanced Materials & Critical Minerals

23.00

Biotechnology

Clean Fuels & Carbon Management

Content & IP Economy

18.00 Cybersecurity

Disaster Prevention & National Resilience

Drug Discovery & Advanced Healthcare

Food Technology

13.00 Ocean Infrastructure

Ports & Logistics Infrastructure