While the rest of the world frets about a data center hangover, financial and political, Japan is rushing to join the party. That could boost some stocks that have flown below radar.

A conservative Japan Inc. largely sat out the rush to cloud computing that powered Data Centers 1.0, preferring to keep information on their own servers, says Hisashi Arakawa, head of Japan equities at Aberdeen Investments. That's left the No. 4 economy way behind as 2.0 revs up. Japan's gross domestic product is one-seventh the size of the U.S. Its data center use is one-seventeenth in gigawatt terms, the International Data Center Authority reports.

Investors have plans to fill the gap. Just this month, U.S.-based artificial intelligence A-listers Anthropic and Dell unveiled multibillion-dollar Japanese data center projects, in partnership with NTT and local power generator Jera, respectively. Private-equity giant Blackstone laid out its own $30 billion Japanese agenda in June.

Part of the draw is an emphatic YIMBY attitude from Prime Minister Sanae Takaichi's government, which flagged AI infrastructure as a priority for the $2.3 trillion, 15-year strategic investment plan it announced this summer. "The government support will be about de-bottlenecking approvals, particularly in power generation," says Noriaki Saito, head of investment strategy at Global X Japan.

What could go wrong? Investors are relaxed about a consensus-oriented Japanese public catching the anti-data center fever that is roiling industry plans from Texas to Australia. "Resistance will probably be limited compared to other countries," predicts Keiichi Matsumoto, director of the government-linked Japan U.S. Venture Ecosystem.

Takaichi has effectively linked keeping data at home with national security as global cyberattacks and AI "accidents" increase. Aberdeen's Arakawa notes. Despite its famous population density, Japan has large tracts of abandoned rural land for data center siting, adds Neil Newman, head of strategy at Tokyo-based Astris Advisory. "More than 90% of Japanese live in urban areas," he says. "Rural areas are so empty, there is no one there to complain."

Japan's more acute challenge in the data center race is power, Newman says. Lacking its own fossil fuel resources, the country was aiming for nuclear power to provide half its electricity before the Fukushima disaster of 2011, he notes. The proportion today is less than 10%, leading to a sort of soft rationing for households. "You can't sell electric vehicles here because there's not enough power to charge them up," Newman says.

Takaichi has plans for a nuclear resurgence in the 2030s. Arakawa is skeptical. "The nuclear restarts have been quite political with local governments getting involved," he says.

While Anthropic and Dell are both aiming for the Tokyo-Osaka metropolitan belt, the northern island of Hokkaido is emerging as a land of the data center future, combining wide open spaces, wind power, and temperatures that minimize cooling costs. SoftBank Group and Toyota Group subsidiary Eurus Energy are among the heavy hitters moving forward there.

Arakawa sees Japanese data center capacity doubling over the next few years, a relatively conservative estimate. That should lift the shares of overlooked electrical engineering contractors like Kraftia and Kandenko, he predicts. "We are seeing double-digit order growth and rapid market expansion in this subsector," he says.

Other Japanese names already play unheralded but critical roles in the global data center supply chain and stand to benefit from domestic expansion. Global X's Saito flags Mitsubishi Heavy Industries, a top producer of turbines for natural gas-powered electricity generators, and Daihen, which makes transformers for power grids. Arakawa adds Daihen competitor Fuji Electric and Sumitomo Electric Industries, a standout manufacturer of the optical cables that thread through data centers.

"As long as the supply chain is paid, all these companies will be fine," Neil Newman comments.

One indication of how fast and far Japan will move on data centers should come by year's end, when a Takaichi budget attaches some concrete yen amounts to her strategic investment priorities, which number no less than 17.

Standing still doesn't seem like an option, though, for a Japan increasingly convinced it needs to stand on its own. "The geopolitical backdrop matters more than a decade or two ago," Saito says. "Having data centers within Japan seems more important nowadays."

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