Home / Business and Economy / AI Stock Surge Falters: Cable Giant's $40B Plunge
AI Stock Surge Falters: Cable Giant's $40B Plunge
26 May
Summary
- Fujikura's stock value dropped nearly 50% following a weak earnings forecast.
- The selloff highlights investor concerns about production capacity versus AI demand.
- Material shortages and evolving technology pose long-term risks for cablemakers.
A significant selloff, amounting to $40 billion, in the 141-year-old Japanese firm Fujikura Ltd. has underscored the volatility within the global AI stock rally. The optical fiber cable manufacturer saw its stock value plummet by nearly 50% in the week ending May 20, following a lower-than-expected earnings forecast and a subdued medium-term business plan.
Fujikura, a key supplier of fiber optic cables crucial for AI data center connectivity, had previously experienced a remarkable surge of over 1,500% in its share price over the preceding two years. This growth was fueled by the escalating demand for generative AI models and its involvement in US data center infrastructure development.
However, the market is now questioning Fujikura's capacity to scale production adequately to justify its high valuation. The company's projected operating income for the fiscal year starting April 2028 fell short of analyst estimates, with its president indicating that production capacity would remain insufficient even with new facilities.
The repercussions of Fujikura's stock decline have extended to other cablemakers, with Furukawa Electric Co. and Sumitomo Electric Industries Ltd. also underperforming. This broader market reaction reflects growing concerns about material bottlenecks and supply chain constraints delaying data center projects.
Broader anxieties about the sustainability of AI-linked valuations are also surfacing. Despite its recent rout, Fujikura's stock still trades at a premium compared to the broader market. Lingering concerns include material shortages, such as hydrogen and helium, and potential long-term risks from advancements in transceiver technology that could reduce cabling needs.
Despite these challenges, the near-term outlook for cable demand remains robust, with global data center cable demand projected to grow significantly by 2030. Cablemakers also maintain pricing power with large clients like Apple. While a rebound is possible, a full return to previous highs is considered unlikely.
