SoftBank surpasses Toyota for the first time since the peak of the dot-com era.

      TL;DR: SoftBank briefly surpassed Toyota as Japan's most valuable firm last week, marking the first time since February 2000, just before the dot-com bubble burst. Kioxia jumped from 154th to the top three within a year, demonstrating the rapid changes in Japan's corporate landscape due to the AI-driven surge.

      Last week, SoftBank momentarily knocked Toyota from the top position as Japan's most valuable company after a stock rally boosted its market cap by over $120 billion in just six months. However, three days later, Toyota regained the lead.

      The last occasion SoftBank held the top position was in February 2000, right before the dot-com bubble began to implode. Within a year after that, SoftBank's stock had plummeted by roughly 90%.

      In terms of rankings, Kioxia, a NAND flash memory producer, moved up from being the 154th largest company in Japan a year ago to now being in the top three, surpassing notable companies such as Nintendo, Sony, Panasonic, and Canon due to a surge in AI-driven memory demand. Additionally, Murata Manufacturing, which manufactures small multilayer ceramic capacitors, and chip tester Advantest have also entered Japan's new AI-influenced top 20. Meanwhile, despite launching the fastest-selling console ever, Nintendo dropped over 20 places and is struggling to maintain a spot in the top 30.

      Reflecting on the past, in early 2000, Japan's top 20 was primarily filled with internet success stories, including NTT and its subsidiaries, Hikari Tsushin, SoftBank, Fujitsu, and NEC, many of which were not even in the top 50 just a year prior. By the end of 2001, Hikari Tsushin had fallen to 615th place.

      Chris Smith, co-manager of the Japan Value Fund at London’s Polar Capital, noted, "The dot-com bubble is certainly relevant now. The market returns are highly concentrated, and it's uncertain how long this situation can persist."

      The current market concentration is significant in Japan. Chip manufacturers and component companies have thrived due to rising demand from data centers, while gaming and consumer electronics firms have had difficulties due to rising material costs. The automotive sector, vital to Japanese manufacturing, has been pressured by tariffs and geopolitical issues.

      On Monday, as SoftBank and Kioxia saw declines of over 6% in an AI-driven selloff, other companies like Nintendo, Capcom, and Recruit rallied. The broader Topix index outperformed the technology-heavy Nikkei 225 by more than a percentage point.

      Reasons why the current scenario might differ from 2000 include Japan's many AI laggards, which may help prevent a collapse akin to the dot-com crash. Smith pointed out that companies missing out on the AI boom could provide “very strong relative returns” once the inevitable shift occurs.

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

      The future will be tested by several significant tech IPOs scheduled in the coming months. SpaceX is set to list this week, and OpenAI and Anthropic have filed for public offerings. If the market can absorb these without a correction, the AI trend may prove to be more sustainable than in the dot-com era.

      However, if it cannot, the parallels will become sharper. The dot-com bubble comparison is not a prediction but a pattern reflecting what occurs when a limited number of companies attract most of the market's capital, raising the question of whether current valuations are supported by underlying revenue. In Japan, where Kioxia rose from 154th to third place in just a year, this question is particularly pressing.