Japan Tech Strategy 3Q26: Tech leadership to broaden out...selectively rotate

Research evidence excerpt

Japan Tech Strategy 3Q26: Tech leadership to broaden out...selectively rotate

21 July 2026

Japan Quant & Fundamental Tech Strategy

Japan Tech Strategy 3Q26: Tech leadership to broaden

out...selectively rotate

The Japan tech sector has had a strong start to the year, up 14% on equal-weighted and Rupal Agarwal

+65 6326 7641 60% on cap-weighted basis, ie. dominated by large-caps. In this report, we collaborate with

rupal.agarwal@bernsteinsg.com our fundamental analysts to present opportunities from here.

David Dai, CFA Top-down view: The sector looks reasonable on an earnings multiple, trading at 18.2x

+852 2918 5704 fwd. PE i.e. -0.2SD below 10yr avg; but trading at a record high revenue multiple (2.5x

david.dai@bernsteinsg.com

PS). The earnings expectations for the sector are now at record high, though relative to

market there is still room for upward revisions to continue. In 1H26, sub-sector dispersion Jay Huang, Ph.D.

+852 2123 2631 has been high with Semis, Factory Automation and Electronic Equipment outperforming

jay.huang@bernsteinsg.com sharply while IT Services, Software and Entertainment lagging. The winning sub-sectors

are becoming increasingly vulnerable given elevated valuations and extreme bullish

Robin Zhu sentiment while losing sub-sectors like IT Services, Software and Entertainment have fallen +852 2123 2659

robin.zhu@bernsteinsg.com to attractive valuations, extreme downgrades and low crowding. July has seen strong intra-

sector rotation, and we believe that has legs, though more selectively given there has not

Cheng Zhang, CFA, CQF been clear inflection in either valuation or earnings. Factor-wise, Momentum and GARP

+852 2123 2636 have been the only styles generating alpha in 2026, while Quality and Low Volatility have cheng.zhang@bernsteinsg.com