Japan Metals Sector: APAC Focus: Reassessing AI/DC profit pools

We examine the differentiation strategies and potential for further share price upside of five data center-related names—Fujikura, Sumitomo Electric Industries, Furukawa Electric, Mitsui Kinzoku, and JX Advanced Metals. The market tends to view AI/data center-related names as a single group, but the technological bottlenecks and profit pools controlled by each company differ substantially. We believe future excess returns will accrue not to companies based on the scale of AI investment itself, but to those that control technological constraints within the supply chain, including ease of installation, low power consumption, high-density packaging, and crystal quality. Following recent share price corrections, we think investors should focus less on the scale of AI exposure and more on the sustainability of profit margins and potential for ROIC improvement. Mitsui Kinzoku (5706, Buy) is our top industry pick;