Japan IT Hardware & Electronics: Japan's Physical AI Comeback - Initiating with a positive view

Physical AI is expanding AI monetization beyond compute into the infrastructure, systems, and components required for real-world deployment, where Japanese tech-industrials hold differentiated positions. We initiate coverage of seven Japan IT Hardware & Electronics companies with a positive sector view. Our differentiated view is that Physical AI creates a multi-sector compounding cycle, with components, power, grids, connected systems, and software acting as mutually reinforcing growth drivers. We rate Hitachi, Mitsubishi Electric, MHI, Murata, and NEC Outperform; KHI and Panasonic Market-Perform.