Barclays has a contrarian pick for investors chasing the artificial intelligence boom: Japan. In a note to clients on Wednesday, the bank argued that Japanese equities offer the best risk-adjusted way into the AI cycle among major markets, while Korea and Taiwan have turned into crowded bets on a single slice of the chip supply chain.
Japan. Image credit: David Edelstein via Unsplash, free license
Key Takeaways:
- Barclays calls Japan the strongest risk-adjusted AI play, warning that Korea and Taiwan lean too heavily on one part of the semiconductor chain.
- The SOX index has climbed 80% from its March lows, with several memory chipmakers passing the trillion-dollar mark.
- The Nikkei 225 trades at 18 to 19 times forward earnings, well under stretched U.S. valuations.
Analyst Ajay Rajadhyaksha pointed to a clear change in the AI trade through 2026. U.S. Big Tech has fallen behind, while chip stocks have run hard. The SOX index sits 80% above its March lows, and a handful of memory makers have recently joined the trillion-dollar club.
The trouble, Barclays said, hides underneath those headline gains. The most popular versions of the trade carry a quiet concentration problem. Samsung and SK Hynix together make up more than half of Korea’s Kospi. TSMC by itself accounts for 42% of Taiwan’s TAIEX.
“Korea is a memory trade. Taiwan is a foundry trade. Japan is an economy trade, with an AI kicker,” Rajadhyaksha wrote.
Japan, by contrast, touches several rungs of the AI ladder at once. Equipment makers such as Advantest and Tokyo Electron sit near the top of the chain. Infrastructure names like SoftBank add another angle. None of that ties investors directly to the memory pricing swings that drive Korea and Taiwan.
The bank also leaned on Japan’s reform story as a second engine. Corporate governance keeps improving. Dividends are rising. Buybacks are speeding up. And inflation has come back after three decades of falling prices.
The call lands in the middle of a wider argument about how narrow the AI rally has grown. South Korea’s Kospi and Taiwan’s Taiex both jumped roughly 80% over the year, lifted by a small cluster of chip giants, which has stoked worry that the two markets now ride almost entirely on AI hardware. Goldman Sachs has pegged Taiwan’s earnings as over 80% exposed to AI, with South Korea near 60%. Japan’s appeal, in the Barclays framing, is that it can ride the same wave without staking the whole portfolio on chip prices.
“The KOSPI and Taiex have given the better returns. The Nikkei is likely giving the better risk-reward now,” Rajadhyaksha wrote.
That argument rests on price. The Nikkei 225 trades at 18 to 19 times forward earnings. U.S. stocks, Barclays noted, sit near a priced-for-perfection level that leaves almost no room for error.