On Monday, May 18, the Tokyo stock market saw the benchmark Nikkei Stock Average fall 593 points from the previous session to 60,815 yen, marking its third consecutive decline. The index plunged by more than 1,000 points at one point, testing the psychological 60,000 threshold, before bargain-hunting and short-covering emerged to stem further losses. Current global market anxieties have shifted away from the Middle East crisis surrounding the Strait of Hormuz, as markets routinely adapt to geopolitical risks. While the Hormuz situation remains closely tied to crude oil trends and poses a headwind for corporate earnings, speculative fervor has clearly waned.

Instead, global focus has centered on the relentless surge in long-term interest rates worldwide. In the UK, yields hovering around 5% are becoming the norm, while US 10-year yields have recently climbed near 4.6%. In Japan, the newly issued 10-year government bond yield rose to 2.8%, hitting a 29-and-a-half-year high. Historically, rising interest rates make equities appear overvalued, creating headwinds for investors. Although tech shares are traditionally not classified as interest rate-sensitive, they frequently face selling pressure in reality, with small- and mid-cap growth stocks historically bearing the brunt.

Furthermore, surging yields often trigger a reversal in momentum. The heavily bought Nikkei faces inevitable headwinds, forcing high-weight AI and semiconductor-related shares into a temporary profit-taking phase. However, any sector rotation into domestic-demand and value stocks will likely remain limited. For instance, while Mitsubishi UFJ Financial Group, Inc. <8306> trades near its all-time high, it is unlikely to replicate the explosive, multi-fold rallies previously seen in Lasertec Corporation <6920> or Kioxia Holdings. Over the ultra-long term, capital may gradually diversify away from tech concentration, but this rebalancing will take time. The market's current playbook is simply to park capital in defensive havens to weather the correction in next-generation growth sectors. Unlike a systemic financial bubble, the current "AI and semiconductor boom" appears far from over, with many investors betting that significant opportunities lie ahead.

In the US, Nvidia is slated to report its February-April 2026 earnings after the market close on May 20 (early morning of May 21, Japan time), an event that has become a global blockbuster for markets. While another robust report is widely anticipated, investor focus centers on its May-July guidance and gross margin trends. The growth trajectory of its AI data center division also remains under intense scrutiny. The prelude to this Nvidia earnings play was Kioxia's financial results disclosed on Friday, May 15.

Kioxia's earnings were stellar. The ongoing boom in AI data center construction centers on generative AI servers, where solid-state drives (SSDs) utilizing NAND flash memory clusters are creating explosive revenue opportunities for the company. Kioxia announced on May 15 that it expects April-June 2026 sales to surge five-fold year-on-year, while net profit is projected to jump an astounding 48-fold to 869 billion yen. With the market consensus hovering just above 400 billion yen, the results delivered a massive positive surprise. Even as semiconductor shares faced a broad sell-off in European and US markets last Friday, and Tokyo's mega-cap chip stocks languished, Kioxia traded in a league of its own, locking at its daily upper limit until the close. While Nvidia's upcoming earnings may follow a similar trajectory, the true test of an earnings play lies in the post-announcement price action. Kioxia's blockbuster results may have raised the bar for Nvidia, leaving the ultimate market reaction yet to be seen.

Today, often-overlooked Kioxia-related shares also attracted buying. T&S Group Inc. <4055> and Quest Co., Ltd. <2332> both surged over 12%, while JAPAN MATERIAL Co.,Ltd. <6055> also advanced. Although they formed negative candlesticks due to broader market weakness, the Kioxia theme could enjoy sustained interest. Beyond Rigaku Holdings, other noteworthy plays include ARGO GRAPHICS Inc. <7595> and Mitsui High-tec, Inc. <6966>. Mitsui High-tec is tracking a classic market pattern, rebounding after foreign brokerages downgraded the stock to "sell." Despite a mild pullback today, its technical chart setup remains highly attractive.

Looking ahead to Tuesday's schedule, Japan's preliminary January-March GDP data will be released before the market open, alongside a 1-year Treasury discount bill auction. In the afternoon, revised March industrial production and the March Tertiary Industry Activity Index will be announced. Globally, focus will center on the UK's January-March unemployment rate and the Eurozone's March trade balance. In the US, April pending home sales are due, and remarks from Fed Governor Waller during an upcoming panel discussion will be parsed closely, while Home Depot is set to report corporate earnings.

Source: MINKABU PRESS

*Translated by generative AI. Click here for the original article.