Japan Cablemaker Plunge Exposes Vulnerabilities in Artificial Intelligence Infrastructure Rally

Fujikura's Selloff Highlights Fragility of AI-Driven Stock Rally

A $40 billion selloff in Fujikura Ltd., a 141-year-old Japanese cable firm, has served as a reality check on the fragility of the global AI-driven stock rally. The company's stock price almost halved in value in the week through May 20 as investors rushed to dump its shares following a disappointing earnings forecast and lackluster medium-term plan. Although the shares have since recouped some of those losses, they are still trading almost 30% below their all-time closing high hit on May 13.

Fujikura's rollercoaster week reveals how quickly the tides can turn for AI stock winners as investors realize hopes for explosive growth in infrastructure may have run far ahead of manufacturers' ability to deliver. The company, which supplies fiber optic cables used to connect servers and switches inside AI data centers, has been one of Japan's hottest trades over the past two years amid surging demand for generative AI models.

However, the market is increasingly questioning whether Fujikura can expand production quickly enough to justify its lofty valuation. In a mid-term plan released on May 19, the company forecast operating income of ¥315 billion in the fiscal year starting April 2028, well below the average analyst estimate of ¥455 billion. President Naoki Okada has said the firm's production capacity will remain insufficient even after a new plant in Chiba prefecture comes online.

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The selloff has reverberated beyond Fujikura as investors reassess the feasibility of the AI infrastructure boom. Concerns are growing that some data center projects are facing delays due to material bottlenecks and supply chain constraints. Stocks of fellow cablemakers Furukawa Electric Co. and Sumitomo Electric Industries Ltd. have also underperformed Japan's Nikkei benchmark since May 13.

Material shortages are adding to the pressure. Fujikura has flagged concerns over supplies of hydrogen and helium, with the latter exacerbated by the Iran war. There are also longer-term risks emerging for the cable demand story. Rapid advances in transceiver technology are expected to reduce the amount of cabling needed inside future data centers.

Despite these challenges, the demand outlook for cables remains strong. CRU Group forecasts global demand for data center cables will grow 22.4% between 2024 and 2030, driven largely by North America. Cablemakers also retain significant pricing power because their hyperscaler customers can absorb higher costs quickly.

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