(Bloomberg) — Shares of a small Japanese chip design firm have quintupled since it listed in October, supercharged by expectations of a boom in silicon demand driven by artificial intelligence.
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Socionext Inc. has jumped more than 245% this year, with its market value touching a high of around ¥957 billion ($6.7 billion), making it the best-performing stock on the Topix index. The surge is part of a global rally in AI-related semiconductor stocks, highlighted by Nvidia Corp.’s surprisingly bullish outlook in May.
The Yokohama-based firm, which was founded through a merger of the systems-on-chip (SOC) divisions of Fujitsu Semiconductor Ltd. and Panasonic Holdings Corp. in 2015, develops customized modules for clients across the consumer, automotive and industrial fields.
“This is pretty much the only listed Japanese company that covers a unique field of customized SOC,” said Rina Oshimo, a strategist at Okasan Securities. Because Socionext develops and produces chips only after receiving orders, it has a fundamentally different business model from industry leaders Nvidia and Advanced Micro Devices Inc., she added.
Socionext develops SOCs for use in electric vehicles, smart devices and data centers, according to its website. The company first debuted on the Tokyo exchange in October, with shares jumping 15% on its debut.
“It’s involved in an area, design of systems-on-chip, which we think has very significant growth potential going forward in autonomous vehicles, mobile, 5G and potentially 6G technologies,” said Richard Aston, portfolio manager of the CC Japan Income & Growth Trust plc., which holds shares in the firm.
The fund sees the company as a long-term investment. “There is also an emphasis from management on paying a dividend and growing that dividend over time,” Aston added.
Socionext’s year-to-date surge compares with an average gain of 13% for Asian listings larger than $500 million that debuted since January, and 18% for global IPOs over the same period, according to data compiled by Bloomberg.
The meteoric rise has taken a dent in recent days, as the company was downgraded for the first time on Wednesday by SMBC Nikko, which said the market rally for fast-scaling firms looked overdone. The stock plunged 18% Thursday, its biggest ever drop. Socionext is covered by eight analysts, with seven buys, one hold and zero sells, according to data compiled by Bloomberg.
“Earnings prospects are promising and it’s uniquely positioned in the industry,” said Tim Morse, an analyst at Asymmetric Advisors. However its ascent may have been too rapid, and “we wouldn’t be surprised to see further profit-taking in both the sector and this name for now.”
–With assistance from Filipe Pacheco.
(Updates share moves in second paragraph. An earlier version corrected the date of Socionext’s first downgrade.)
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