Toto's Hidden Chip Business Powers AI Boom

Activist fund Palliser Capital has acquired a stake in Toto Ltd., a Japanese manufacturer known for its washlet products. The UK-based fund is pressuring Toto to increase promotion of its lesser-known chip parts business, aiming to capitalize on the burgeoning AI boom.

Palliser sent a letter to Toto's board, requesting more disclosures about its advanced ceramics segment. This division manufactures electrostatic chucks essential for NAND chip production. Palliser views Toto as a significantly undervalued entity benefiting from AI memory demand.

The escalating demand for AI infrastructure has caused a sharp increase in memory chip prices. Toto has reportedly missed out on substantial stock gains due to a perceived lack of transparency regarding its chuck business.

This campaign by Palliser follows a notable 10% single-day stock increase for Toto after a rating upgrade from Goldman Sachs, which had highlighted the profit potential of the chuck-making division.

Palliser estimates that Toto's share price could see an additional 55% upside by enhancing awareness of its chip materials segment and improving capital efficiency. Despite its prominent washlet products, Toto's shares have declined approximately 17% over the past five years, underperforming the Japanese Topix index's 93% gain.

The global chip shortage is intensifying, with warnings from industry leaders about its pervasive impact. Key corporations have signaled that memory chip scarcity will constrain production, affecting everything from smartphones to data centers.

The fundamental driver of this shortage is the substantial buildout of AI data centers. Companies are acquiring vast quantities of memory chips to power AI applications, leading to reduced availability for consumer electronics. This has resulted in rapid price increases for memory chips.

Prices for certain DRAM types have surged dramatically, impacting the entire electronics supply chain. This situation is expected to persist throughout 2026 and beyond, with significant investment planned for AI data center construction.

The diversion of manufacturing capacity by major memory producers like Samsung, SK Hynix, and Micron towards high-bandwidth memory (HBM) for AI accelerators has reduced the supply of standard DRAM for consumer devices. This strategic pivot is driven by the higher margins and demand for HBM.

Consequently, the reduced supply of basic memory chips is impacting various industries, including automotive and consumer electronics. Companies are facing production constraints and considering price adjustments or seeking alternative chip solutions.

Experts predict that memory chip shortages will continue across sectors such as electronics, telecom, and automotive industries throughout 2026. The industry is experiencing a significant disconnect between demand and supply, with new chip facility construction taking years.

This phenomenon is being described as a potential "super-cycle" driven by AI demand, which could fundamentally alter the historical boom-and-bust cycles of the memory chip market. Companies are warning consumers to prepare for increased prices on electronic devices.