Kioxia's value halves in a month as AI chip rally falters

Kioxia's dramatic reversal from Japan's most valuable company to fourth-largest in a single month reflects a sharp shift in how investors view the semiconductor sector's AI opportunity. The company's 600% gain earlier this year was fueled by straightforward supply-and-demand logic: AI infrastructure requires vast quantities of memory chips, and Kioxia, emerging from years of sector downturn after its 2024 listing, stood to benefit handsomely. However, the recent selloff signals that investors have begun questioning whether the payoff from chipmakers' massive capital expenditures and suppliers' elevated valuations can be justified. Yugo Tsuboi, chief strategist at Daiwa Securities, points to a familiar pattern: the semiconductor industry is cyclical, and memories of past boom-and-bust cycles are resurfacing as traders reassess fundamentals.

The catalyst for the repricing appears to be twofold. First, concerns that memory-chip prices may stabilize as Chinese competitors gain traction, ending the period of unchecked pricing power that has driven earnings estimates higher. Second, a broader investor rotation away from AI stocks into undervalued sectors, reflecting skepticism about whether AI's near-term revenue payoff justifies the lofty multiples chipmakers now command. This skepticism extends across the global chip sector: even Taiwan Semiconductor Manufacturing Co., widely seen as best-in-class, faced investor criticism over its AI investment plans despite posting solid outlooks. The exit of shareholder Bain Capital from Kioxia has been interpreted by some as a signal that the semiconductor cycle and the stock's rally may be approaching a peak—a reading that resonates with Kioxia's Japanese retail investor base, which holds leveraged positions and is particularly exposed to further declines if the selling accelerates. Yet despite the turmoil, sell-side analysts have not capitulated: forecasts for an 118% return over the next year suggest they still see value, and the Topix rebalancing in October may provide a stabilizing force through passive inflows.