A 141-year-old Japanese cable company is becoming a revealing mirror for the global AI infrastructure investment frenzy. Fiber optic cable manufacturer Fujikura Ltd. saw its stock price nearly halve in the week ending May 20, erasing approximately $40 billion in market value. The trigger was the company's disappointing profit forecast and mid-term plan, leading investors to reassess the valuation logic of AI infrastructure concept stocks. Although the stock price has since recovered somewhat, Fujikura remains about 30% below the all-time closing high it set on May 13.

The shockwaves from this plunge have spread across the entire sector. Fellow cable manufacturers Furukawa Electric Co. Ltd. and Sumitomo Electric Industries Ltd. have both underperformed the Nikkei index since May 13. Market skepticism is growing over whether AI data center construction can proceed as scheduled.

**Capacity Bottlenecks Shatter High-Growth Expectations** Fujikura is a key supplier of the fiber optic cables used inside AI data centers to connect servers and switches. Benefiting from the explosion in generative AI demand over the past two years, its stock price surged over 1500% in the 24 months leading to mid-May, making it one of the hottest stocks in the Japanese market. The company is also a member of the "Portsmouth Alliance," a group responsible for advancing data center infrastructure construction in the United States.

However, the mid-term plan released on May 19 severely disappointed the market. Fujikura forecasts operating profit for the fiscal year 2028 (starting April 2028) to reach 315 billion yen (approximately $2 billion), far below the analyst consensus estimate of 455 billion yen. Company President Naoki Okada admitted that even after a new factory in Chiba Prefecture becomes operational, the company's production capacity will still be insufficient to meet demand.

"Fujikura failed to sufficiently expand capacity, creating a gap between market expectations and reality," said Norikazu Shimizu, an analyst at IwaiCosmo Securities. "Even if they wanted to produce more, they simply cannot fully meet the demand."

**Dual Pressures from Raw Material Shortages and Technological Change** Beyond capacity constraints, tight raw material supply is further exacerbating Fujikura's difficulties. The company has issued warnings about supply issues for hydrogen and helium, with the helium shortage becoming increasingly severe due to the war in Iran.

From a longer-term perspective, technological evolution also poses a potential threat. Rapid advancements in transceiver technology are expected to reduce the amount of cable required inside future data centers. William Nestuk, an analyst at Pelham Smithers Associates, noted that this is "certainly a risk," but it may take several years before it materially impacts demand.

Simultaneously, concerns are spreading that some data center projects may face delays due to bottlenecks in power and materials. Amir Anvarzadeh, a Japan equity strategist at Asymmetric Advisors, warned, "Once the market realizes that data center construction is experiencing start-up or completion delays due to bottleneck issues, cable stocks will be the first sector to undergo a comprehensive re-rating."

**High Valuation Bubble Risks Emerge** This sharp decline has also spotlighted the issue of inflated valuations for AI concept stocks. According to data compiled by Bloomberg, before the profit warning, Fujikura's Relative Strength Index (RSI) was nearing 80, indicating severe overbought conditions. Even after this significant drop, Fujikura's stock price still trades at a forward price-to-earnings ratio of over 40, significantly higher than the Topix index's overall level of around 18.

The demand fundamentals are not entirely pessimistic. CRU Group predicts that global data center cable demand will grow by 22.4% between 2024 and 2030, with the North American market being the primary driver. Cable manufacturers still hold relatively strong pricing power with hyperscale cloud computing clients, who can quickly absorb cost increases. Apple Inc. is one of Fujikura's largest customers, accounting for approximately 4% of its revenue according to Bloomberg data. Nestuk believes these advantages provide some room for a rebound in Fujikura's stock price, but a return to pre-warning levels is unlikely.

Nevertheless, Fujikura's rapid fall has sent a clear signal. "Investors are seeking to reduce their exposure to the high valuations of AI data center and bottleneck concept stocks," Nestuk said. The era of AI infrastructure stocks being the market's darling may be quietly coming to an end.