Japanese industrial automation leader Fanuc Corporation (FANUY) experienced its steepest single-day stock drop in more than ten years, as investors offloaded shares of the robotics manufacturer amid concerns that rising component costs could prevent order growth from translating into stronger profits. The stock fell as much as 19% during Monday's trading session, ultimately closing 14% lower, marking the largest daily decline since 2008.

Despite the selloff, Fanuc Corporation reported a 35% year-on-year increase in net profit for the quarter ending June, surpassing analyst expectations as compiled by Visible Alpha. Sales and orders also improved, rising 18% and 37% respectively. The robust performance prompted the company to raise its full-year profit forecast. However, investors appeared concerned that the substantial growth in first-quarter sales and orders did not lead to a correspondingly strong upward revision in guidance. The company raised its full-year sales and operating profit forecasts by only 4.2% and 2.7%, respectively, a relatively modest adjustment.

In its earnings report, Fanuc Corporation stated that amid rising geopolitical risks and capital expenditures, it has intensified sales and procurement efforts while implementing cost-cutting measures. In recent months, prices for electronic components, particularly semiconductors like memory chips used in robots, have remained elevated due to robust demand and persistent supply shortages.

Morningstar analysts commented, "The surge in orders should not be translated one-to-one into revenue, because component shortages are limiting shipments, and longer lead times have prompted some advance ordering." While Morningstar also raised its sales and operating profit forecasts for Fanuc Corporation, it noted that "component inflation and limited pricing power are eroding operating leverage."

Nevertheless, analysts indicated that the long-term outlook for the Japanese company remains positive. Fanuc Corporation, which also produces computer numerical control (CNC) systems essential for industrial automation, is a key Japanese beneficiary of the global artificial intelligence boom, as demand for AI applications, including physical AI, continues to surge. Morningstar analysts expect that booming AI server investments will support demand for Fanuc Corporation's products, which are used by machine tools in chip manufacturing, data center cooling, and power equipment production. They added that the company is well-positioned to maintain its competitive advantages in control platforms and its installed base, thanks to its open architecture that allows machine developers to build solutions around its hardware, while its efficient manufacturing model should protect profitability.