According to recent reports, Advantest Corp. (ATEYY.US) is set to confront significant challenges this earnings season. The company's stock has soared nearly 80% this year, pushing its valuation beyond that of its major client, NVIDIA (NVDA.US). Fueled by the AI boom, the largest chip testing equipment manufacturer globally has seen its market capitalization exceed $80 billion, firmly placing it in the sights of global investors. As of the end of September, Advantest was the largest component in the Nikkei 225 index, surpassing SoftBank and Fast Retailing.

Over the past two months, the stock has accelerated its rise, gaining heightened attention amid discussions about the AI stock bubble. Currently, Advantest's share price exceeds analysts' target prices, achieving a P/E ratio of 44, compared to NVIDIA's 31. Options data indicates that following its earnings report on October 28, Advantest's stock price may experience significant fluctuations, with an expected volatility of 6.4%, more than double the average post-earnings increase over the past two years.

Kazunori Ito, a director at investment research firm Morningstar, noted that the rapid increase in Advantest's share price has exceeded expectations, driven by optimistic sentiments surrounding AI, despite disappointing performances in other semiconductor sectors. Last month, he downgraded the stock to "sell" but acknowledged that the company will be a major benefactor of AI in the long term. Since the beginning of the year, market expectations for Advantest's earnings per share in the next 12 months have been revised upward by over 50%, reflecting extremely high expectations. However, analysts are still struggling to keep pace with the stock's rise, which is currently 18% above broader market expectations.

Part of this optimism stems from the performance of other players in NVIDIA's supply chain, such as TSMC (TSM.US) and ASML (ASML.US). However, concerns about non-AI chip demand have been raised due to Texas Instruments (TXN.US) results. The upcoming earnings report and outlook from Advantest are highly anticipated following the significant stock price increase. Maito Yamamoto, chief analyst at Nissay Asset Management Corp., stated that the AI hype has already been factored into the stock price, leading to a focus on whether new catalysts will emerge to boost next year's market consensus expectations, particularly regarding the continuity of strong demand for AI-related testing equipment.

Next month's earnings from NVIDIA will become a pivotal event for the industry, revealing the spending frenzy among large-scale enterprises and their demand for equipment. Being included in the TOPIX Core 30 index this month presents another potential driver for Advantest, attracting inflows from passive tracking funds. In recent weeks, its weight in the Nikkei 225 index briefly reached 10%, which may limit the space for future adjustments among blue-chip indices. As one of the best-performing semiconductor stocks globally in 2025, Advantest is also one of the most highly valued. However, certain investors argue that, given its 58% share in the global chip testing equipment market, its dominant position warrants a premium investment. Yuuki Mitsui, a fund manager at Aizawa Securities, mentioned that investors are aware of the stock's expensive price but are willing to accept this premium, viewing it as one of the companies that justifies premium trading.