SoftBank surpasses Toyota for the first time since the dot-com boom.

      TL;DR SoftBank temporarily surpassed Toyota as Japan's most valuable company, marking the first instance since February 2000, just before the dot-com bubble burst. In a year, Kioxia climbed from 154th to a top-three position. The rapid AI-driven market rally is swiftly changing Japan's corporate landscape.

      Last week, SoftBank displaced Toyota as Japan's most valuable company due to a stock surge that boosted the conglomerate's market capitalization by over $120 billion in just six months. However, Toyota reclaimed its status three days later.

      The last time SoftBank was in this position was in February 2000, at the brink of the dot-com crash. A year later, SoftBank’s shares plummeted by around 90%.

      Shifts in Rankings

      Kioxia, a NAND flash memory manufacturer, was ranked 154th a year ago but has now entered the top three, surpassing major companies like Nintendo, Sony, Panasonic, and Canon due to a spike in AI-driven memory requirements. Murata Manufacturing and chip tester Advantest have also joined the redefined top 20 in Japan. Meanwhile, Nintendo, despite launching the fastest-selling console in history, has dropped over 20 spots and is barely clinging to a top 30 position.

      The Dot-Com Analogy

      In early 2000, Japan's top 20 included several internet-centric companies such as NTT and its subsidiaries, Hikari Tsushin, SoftBank, Fujitsu, and NEC, with some having not even appeared in the top 50 the previous year. By the end of 2001, Hikari Tsushin had fallen to 615th place.

      “The dot-com bubble is certainly relevant now,” stated Chris Smith, co-manager of the Japan Value Fund at London-based Polar Capital. “The narrowness of market returns is striking, and it’s uncertain how long that can last.”

      The AI-or-Nothing Phenomenon

      The concentration of gains in Japan is significant. Semiconductor and component manufacturers have thrived due to data center demand, while gaming and consumer electronics companies face challenges from rising material costs. Additionally, automotive manufacturers, key to Japanese industry, are lagging due to tariff and geopolitical pressures.

      On Monday, while SoftBank and Kioxia saw declines of more than 6% amid an AI-inspired selloff, companies like Nintendo, Capcom, and Recruit experienced gains. Japan's broader Topix index outperformed the tech-focused Nikkei 225 by over a percentage point.

      Reasons It Might Not Be 2000 Again

      Japan's numerous AI laggards may protect its market from a collapse similar to the dot-com era. Smith highlighted that companies not involved in the AI surge could provide “very strong relative returns” during the expected market rotation.

      SoftBank’s brief tenure at the top lasted three days this time, compared to over two weeks in 2000. Kazuhiro Sasaki, head of research at Phillip Securities Japan, noted that Toyota’s ability to retain its top position despite a more than 10% drop in shares this year indicates that Japanese manufacturers still maintain value beyond the AI excitement.

      The Upcoming Challenge

      A series of major tech IPOs in the coming months will assess the sustainability of the rally. SpaceX is set to list this week, with OpenAI and Anthropic having filed as well. If the market can integrate these entrants without a correction, the AI trend may prove to be more resilient than the dot-com boom.

      If not, the similarities to the past will become more pronounced. The comparison to the dot-com bubble is not a forecast but rather a pattern that outlines what occurs when a limited number of companies attract the majority of market capital, raising the question of whether current valuations are supported by underlying revenues. In Japan, where Kioxia rose from 154th to third within a year, this inquiry resonates more keenly than elsewhere.