Factory Automation: Compelling Long-term Growth, Raising Keyence to OW

Research evidence excerpt

Factory Automation: Compelling Long-term Growth, Raising Keyence to OW

clical rebound story into a structural growth

theme. The sector is benefiting from multiple long-term drivers including AI-related

semiconductor investment, manufacturing digitization, labor shortages, productivity

enhancement and robotics adoption. Demand is no longer dependent on a single end

market, with semiconductors, automotive production and electrical machinery all

contributing to growth. The report's central conclusion is that semiconductor capital

expenditure remains the most important source of industry growth in the near term. AI-

driven investments in memory, logic and foundry capacity are creating strong demand for

automation equipment, sensors, motion-control systems and production-line solutions.

This semiconductor cycle appears broader and potentially longer than previous cycles,

providing a stronger foundation for earnings growth through F3/27-28. At the same time,

broader industrial demand is further supporting order momentum.

Japan machine tools show strong momentum, robot industry has long-term upside

Key new work in our report is the analysis of Japanese machine tool orders. We agree with

JMTBA's outlook for orders to reach around ¥2trn in 2026 (+25% YoY), setting a new

annual record. This suggests manufacturers continue to invest aggressively in automation

and productivity improvements despite macro uncertainty. While growth rates may

moderate over time, the level of demand points to a healthier industrial backdrop than

investors currently appreciate. Japanese robot orders and production is also expected by

the Japan robot association to recover meaningfully in 2026 though monthly export

shipment has shown some slowing which may need monitoring for export driven Fanuc.