These Japanese Stocks will crash when US AI Bubble Bursts

These are the Japanese stocks you do not want to own when the US AI bubble bursts

Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. I may hold positions in some of the securities mentioned. Please do your own research and invest at your own risk.

If you have been reading KonichiValue for any length of time, you know that I do not traffic in panic. I traffic in value. I traffic in the unsexy, dusty corners of the Tokyo Stock Exchange where the shosha (trading houses) and the forgotten manufacturers trade at book value while sitting on mountains of cash.

I love Japan because, usually, it is the antidote to American excess. When Wall Street is snorting the cocaine of 100x P/E ratios, Kabutocho is usually sipping green tea and worrying about demographics.

But not this time.

For the past eighteen months, the Japanese equity market has been dragged higher, kicking and screaming, by a singular narrative: Artificial Intelligence. The Nikkei 225 reclaiming its 1989 highs wasn’t driven by a sudden revitalization of the Japanese consumer or a miraculous solution to our shrinking population. It was driven by the premise that Japan supplies the “picks and shovels” for the Silicon Valley gold rush. We make the testers for Nvidia’s GPUs; we make the coater/developers for TSMC’s fabs; we supply the wafers, the chemicals, and the capacitors.

The narrative was seductive. It was clean. And, for a long time, it was profitable. However, looking at the data coming out of the United States and the insider movements within the highest echelons of global tech finance, I am here to tell you that the music might be about to stop

Michael Burry, the man who stared into the abyss of the 2008 subprime mortgage crisis when everyone else saw a housing boom, has placed a massive wager against the semiconductor industry. Peter Thiel, the ultimate contrarian and a man who understands the cycles of Silicon Valley better than perhaps anyone, has liquidated his entire stake in Nvidia. Even the Japanese investment legend Masayoshi Son, a man whose appetite for risk is legendary, sold his Nvidia stake to pivot into an illiquid, private venture, signaling that the easy money in public hardware stocks is gone.

The United States AI bubble is bursting. The Capex spending spree by Hyperscalers (Meta, Google, Microsoft) is hitting the wall of diminishing returns. The “efficiency” gains are not appearing on the P&L statements fast enough to justify the trillions in hardware spend. When the US tech sector sneezes, Japan catches pneumonia. But this time, it won’t be pneumonia. It will be a massacre. The Japanese market is filled with companies that have been bid up to astronomical valuations solely based on their adjacency to Nvidia. They are priced for perfection in a world that is about to get very messy.

In this report, we will strip away the hype. We will look at the fundamentals, the P/E ratios, the inventory channels, and the specific, idiosyncratic risks of the Japanese companies most exposed to this crash. We will identify the “Short List”—the companies that will be dragged into the gutter when reality reasserts itself. This is not a recommendation to panic. It is a recommendation to open your eyes.

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Understanding the Crash Mechanics

To understand which Japanese companies will fall when the US AI bubble bursts, we must first understand the mechanics of the coming crash. The 2001 Dot-com bubble burst not because the internet went away, the internet clearly succeeded, but because the infrastructure build-out outpaced the monetization of that infrastructure by a decade. We are in the exact same cycle. The crash mechanics are technical, rooted in accounting and insider sentiment, and they spell disaster for the Japanese supply chain.

Michael Burry’s specific critique of the current AI market is vital to understanding the risk to Japanese suppliers. Burry has noted that Hyperscalers (Amazon, Google, Microsoft) are “massively ramping capex through purchase of Nvidia chips/servers on a 2-3 year product cycle,” yet they are “understating depreciation by extending useful life of assets”.

In plain English: companies are buying billions of dollars of H100 GPUs. These chips run hot, 24/7, burning out rapidly. Their technological obsolescence is also rapid; the Blackwell chip replaces the Hopper, which replaced the Ampere. The real useful life of these assets is perhaps 3 years. But companies are depreciating them over 6 years to make their current earnings look better.

When the bubble bursts, two catastrophic events occur simultaneously. First, these companies will be forced to take massive write-downs on their balance sheets as they realize their AI servers are worth significantly less than book value. Second, and more importantly for Japan, we will hit a Capex Cliff. The Hyperscalers will stop buying new chips immediately to preserve cash flow while they sweat their existing assets. This “Capex Cliff” is the bullet that kills the Japanese semiconductor equipment market. It turns the “endless growth” narrative into a sudden, violent contraction in orders for testers, steppers, and substrates.

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These Japanese Stocks will crash when US AI Bubble Bursts