Japan's 'Seven Samurai' Rivaling U.S. 'Mag 7': Who Will Lead the Next Investment Surge?

This year, Japan's market has hit historic milestones, with the Nikkei 225 scaling a 34-year peak and the Bank of Japan hiking interest rates, turning the page on the last chapter of global negative interest rates.

The Japanese stock market's record-breaking run has brought the "Seven Samurai" stocks into the spotlight for global investors. Coined by Bruce Kirk, a Goldman Sachs Japan strategist, the term draws a parallel with America's "Magnificent Seven," representing a cadre of Japanese stocks with the clout to rival U.S. tech behemoths.

Comprising Mitsubishi Corp, a Warren Buffett favorite, automotive leaders Toyota and Subaru, and four semiconductor trailblazers—Screen Holdings, Advantest, Disco, and Tokyo Electron—the "Seven Samurai" cut across various Japanese industrial and high-tech sectors.

Considering year-to-date gains, Japan's "Seven Samurai" stocks have shown stellar performance, matching stride with the U.S. 'Big Seven', boasting up to a 60% surge in Q1.

As one of the big winners of the AI wave, DISCO's share price has also surged over 353% since 2023. According to GF Securities research, the company's "cutting, grinding, polishing" equipment is continuously deepening vertically. Its main products are divided into dicing saws, grinders, and polishers, which are widely used in various semiconductor manufacturing processes, covering silicon wafer preparation, front-end wafer preparation, back-end packaging and testing. DISCO also provides sales of matching processing tools and can offer complete industry solutions. According to EET China, the global dicing saw market's top three companies are DISCO, Tokyo Seimitsu, and ADT (acquired by Kulicke & Soffa), with DISCO holding the largest market share, approximately 70%.

Screen's products cover a comprehensive range, leading advanced cleaning equipment technology, and maintaining the world's number one position for several years in single wafer cleaning, batch cleaning, and rotary cleaning equipment.

The global semiconductor cleaning equipment market is highly concentrated, with Screen Holdings commanding nearly half of the market share. Together with TEL (Tokyo Electron), LAM Research, and SEMES (Samsung Semiconductor), these four companies hold more than 90% of the market share. Screen, in particular, accounts for 45.1% of the global semiconductor cleaning equipment market share.

In the wake of the AI boom, Screen's share price has surged nearly 346% since 2023, making it one of Japan's top-performing stocks.

As a pivotal player in Japan's corporate arena, Mitsubishi trades at a sensible P/E ratio of about 14 times. The corporation boasts a net profit margin of 4.61%, with leadership committed to debt reduction and fortifying a solid balance sheet. Since 2023, Mitsubishi Corp has seen its share price rise by over 141%. Notably, in February, the company announced a share buyback plan of 500 billion yen, purchasing up to 10% of its shares, the largest buyback since 2016.

Warren Buffett has strategically acquired holdings in the "Seven Samurai" member, Mitsubishi Corp. Initiating a 5% investment through Berkshire Hathaway's National Indemnity Company. Buffett's stake in the collective companies has since grown to 9.9%. According to the latest financial disclosures from Berkshire Hathaway, Buffett's investment in these quintet firms amounted to $10.63 billion. By the end of 2023, the value of these assets escalated to $19.6 billion, marking an unrealized profit of 61%.

Tokyo Electron is a comprehensive supplier of semiconductor equipment, almost all semiconductor chips in the world go through the company's equipment during the production process.Therefore, TEL's overall income is expected to grow steadily with the demand for semiconductor chips.

Since 2023, thanks to the surge in companies like NVIDIA and the AI trend, Tokyo Electron's share price has climbed over 200%, becoming Japan's third-largest company by market value, surpassing mainstream corporations like Sony Group, and is the second-largest constituent of the Nikkei 225 index. Since the low point in 2008, the company's accumulated gains have reached an astonishing 43 times.

Since last year, the Japanese stock market has seen a significant rise, breaking through the bubble economy's high point and drawing global investor attention. Toyota Motor, with its historically high market valuation, has been quietly powering to new heights and has become one of the leading companies propelling the Nikkei index's rise. The company's shares have soared over 100% since 2023.

With the investment winds blowing towards Japan's semiconductor sector, Advantest has seen its share price soar by over 200% since 2023, with a 42% increase in Q1 alone. Currently, Advantest has become one of the top three constituents of the Nikkei 225 index.

Toyota Motor currently holds the largest stake in Subaru. In 2020, Subaru announced that its largest external shareholder, Toyota Motor, increased its stake from 16.8% to 20%, making Toyota the controlling shareholder. Subaru's performance and sales will now be included in Toyota's financial reports.

Benefiting from strong performance in fuel vehicle models, Subaru's market has surged in 2023. On March 8, Subaru predicted that its comprehensive net profit for the fiscal year ending March 2024 might increase by 70% to 340 billion yen, up 20 billion yen from the previous forecast. Sales are expected to grow by 23% to 4.65 trillion yen, and operating income to rise by 68% to 450 billion yen, exceeding the previous forecast by 30 billion yen.

The sustainability of Subaru's profitability has drawn attention. For the fiscal year 2022, Subaru's operating profit per vehicle sold exceeded Toyota's, ranking first among Japan's seven large manufacturers, with a margin of about 200,000 yen over similarly sized competitors Mazda and Suzuki. Subaru's operating profit per vehicle for the fiscal year 2022 was 2.5 times that of the fiscal year 2021, reaching about 314,000 yen, surpassing Toyota (309,000 yen).