May Q Results: Mixed, with GPM Down Despite Strong Sales Driven by AI-Related Sales That Expanded to 20% of Total

Research evidence excerpt

May Q Results: Mixed, with GPM Down Despite Strong Sales Driven by AI-Related Sales That Expanded to 20% of Total

Update

July 15, 2026 08:18 AM GMT

Morgan Stanley MUFG Securities Co., Ltd.+MShift (3697) | Japan Tetsuro Tsusaka, CFA

Equity Analyst

May Q Results: Mixed, with Tetsuro.Tsusaka@morganstanleymufg.comLuyuan Yang, CFA +81 3 6836-8412

Luyuan.Yang@morganstanleymufg.com +81 3 6836-8423

GPM Down Despite Strong Keiji Nishimura

Research Associate

Keiji.Nishimura@morganstanleymufg.com +81 3 6836-8424

Sales Driven by AI-Related Sales

That Expanded to 20% of Total

Reaction to earnings

Shift (3697.T, 3697 JT)

Unchanged In-line Largely unchanged IT & Software | Japan

Impact to our thesis Financial results versus consensus Direction of next 12-month

consensus EPS Stock Rating Equal-weight

Industry View In-Line

Source: Company data, Morgan Stanley Research Price target ¥700

Shr price, close (Jul 15, 2026) ¥702

Vs. forecasts: Organic sales rose 21.2% YoY, returning to growth as AI-related sales Mkt cap, curr, basic (bn) ¥185.5

Avg daily trading value (bn) ¥6.6

expanded. Sales beat forecasts even if excluding the impact of newly consolidated

subsidiaries. Adjusted OP increased 20% YoY but missed forecasts, as GPM

deteriorated more than anticipated. The profit outcome was disappointing when

considering the strong top-line result. Full-year profit guidance now looks only just

achievable.

Main surprises: AI-related sales expanded to around 20% of total sales, driving a

return to organic sales growth of more than 20%. GPM fell sharply by 230bp due to

lower utilization. The margin decline was particularly disappointing given the strong

sales growth.

Recommended action: The results were mixed, with robust sales growth offset by

weaker margins.