CSC has released a research report stating that the current AI-driven inflation has reached the materials sector. The landscape for material companies is more fragmented, with many leading firms based in Japan. Tensions in bilateral relations have shown signs of accelerating since the second half of 2025. The combination of supply-side "de-Japanification" and demand-side AI inflation presents an almost perfect scenario. The firm believes the "de-Japanification" theme offers significant room for further development and continues to recommend focusing on this trade. Specifically, it suggests monitoring the growth rates of domestic players in powder materials and fluoropolymer materials, as well as opportunities for accelerated import substitution.
CSC's main views are as follows:
Continue Monitoring Material Selection Under the "De-Japanification" Trade
Japanese semiconductor material companies hold a high market share globally. According to the firm's statistics, they rank first in market share for 14 out of 19 major material categories. On one hand, demand is expanding due to industry trends; on the other, supply substitution logic is driven by geopolitical tensions. The "de-Japanification" of key materials is expected to gain further momentum. The report identifies sub-sectors where Japanese companies currently hold high market shares, highlighting investment opportunities arising from accelerated domestic substitution. These include CMP polishing slurries, EUV photomasks, High-K metal precursors, epoxy molding compounds for advanced packaging, anti-reflective coatings for lithography, ceramic substrates and MLCC dielectric powders, InP substrates, ABF films, FC-BGA solder resists, and high-end fluorine-based materials.
AI Demand Drives MLCC Nano-Ceramic Powder Market Recovery
The upgrade of AI servers from GB300 to Vera Rubin/Rubin, coupled with the expansion of automotive electronics driven by electrification, 800V systems, and advanced autonomous driving, has created bottlenecks for high-end MLCCs. This pressure is being transmitted upstream to barium titanate powders/formula powders. AI-grade powders require particle sizes of 100-300nm with higher consistency and batch stability. Their prices are also significantly higher than traditional powders. Meanwhile, high-end formula powders rely on rare earth doping systems. Given constraints on rare earth exports and supply chain security concerns between China and Japan, there is uncertainty surrounding the expansion and closed supply of the Japanese system. Domestic suppliers like Guoci, which possess mass-production capabilities for high-end MLCC dielectric powders, are poised to benefit substantially from the surging demand for high-end MLCC powders in the AI era.
Fluorine Materials: Performance-Driven Explosion in AI & Semiconductor Applications, A Strong Choice for De-Japanification
Japan holds a strong leading position in fluorine chemical engineering, and its application scenarios are expanding. PFA: Used in semiconductor etching and cleaning processes for etch baths, cleaning tanks, CMP components, heat exchanger liners, as well as wafer carriers for wafer transfer and CVD reaction chamber coatings. Demand for PFA is expected to grow significantly with the advancement of process nodes. Electronic-grade PTFE: PTFE is currently the most ideal resin material for high-frequency, high-speed CCL substrates due to its extremely low Df and Dk values. Given that PTFE is significantly cheaper than other materials while offering performance advantages, it is expected to enter a period of rapid volume growth. FEP: High-end FEP can also be used in applications such as optical fiber protective layers and semiconductor wet cleaning pipelines.
Risk Warnings
Potential risks include weaker-than-expected implementation of relevant policies, slower-than-anticipated technological iteration, production impacts from safety incidents, extreme volatility in raw material prices, and weaker-than-expected downstream demand.