The Tokyo stock market saw a sharp rebound on the 21st, with the Nikkei Stock Average surging 1,879 yen to 61,684, recovering strongly for the first time in six days. After falling more than 3,400 yen in total over the previous five trading days, the timing was ripe for bargain hunting and short covering amid concerns over oversold conditions. Still, the intraday surge of over 2,200 yen left a vivid impression on investor sentiment. Two factors provided the backdrop for today's dramatic rally in the Tokyo market: Nvidia's strong earnings announcement and the stellar performance of SoftBank Group Corp. <9984>.

First, as is customary, Nvidia's earnings were nothing short of spectacular. The February-April 2026 results showed revenue up 85% year-on-year to 81.6 billion dollars, with net income soaring 3.1 times to 58.3 billion dollars, easily clearing the high bar set by consensus estimates. For a manufacturer, the extraordinary profit margin (gross margin of 75%) is unparalleled. Furthermore, the May-July guidance projects revenue of 91 billion dollars, up 95% year-on-year - nearly double. With gross margin expected to remain at 75%, the same level as February-April, the company once again demonstrated its overwhelming pricing power.

As anticipated, explosive growth in the data center segment drove overall performance, with that division's revenue surging 92% year-on-year. The company also announced shareholder returns without fail, unveiling an 80 billion dollar share buyback program alongside a substantial dividend increase. In contrast to hyperscalers who are growing revenue but consistently showing low free cash flow due to aggressive capital expenditures, Nvidia always maintains ample cash reserves. Allocating these generously to shareholder returns can be seen as CEO Jensen Huang's confidence in the company's future management. However, after the earnings release, the stock's after-hours trading showed conflicting views, initially trading higher but ultimately being pushed down by selling pressure. Nevertheless, for market participants who had been watching with bated breath, the announcement was undeniably a full and excellent response. Once near-term profit-taking runs its course, the stock can be expected to return to trading near record highs, and that sentiment was conveyed to the Tokyo market today.

However, regarding today's session specifically, there was another protagonist behind the long-awaited sharp rebound in the Nikkei Average. The furious rally exceeding 2,000 yen was largely attributable to SoftBank Group Corp. <9984>, which has high index contribution, and hot money's attention was riveted on the stock's performance as it remained locked at its daily limit up from mid-morning. This single stock alone pushed the Nikkei Average up by more than 800 yen. The previous day, the Wall Street Journal (WSJ) reported that "U.S.-based OpenAI has begun preparations to file for an IPO in the U.S. as early as the 22nd," causing a sudden stir in the Tokyo market. SoftBank Group Corp has been investing aggressively in OpenAI, and cynical market voices had derided this as "sharing the same fate in the AI bubble swamp." However, OpenAI appears poised to demonstrate its true capabilities upon its IPO, and with SoftBank Group Corp holding approximately 11% stake, the visibility of unrealized gains plus a path to enhanced corporate value is significant.

Incidentally, today saw a parade of gains led by SoftBank Group Corp, with major AI and semiconductor-related stocks collectively participating in pulling up the market. Tokyo Electron Limited <8035> ranked second in contribution, ADVANTEST CORPORATION <6857> third, and IBIDEN CO.,LTD. <4062> fourth - these four companies alone lifted the Nikkei Average by nearly 1,500 yen. Following them were Kioxia Holdings <285A> at sixth, Fujikura at ninth, Lasertec at tenth, and Disco at eleventh. These "AI data center family" stocks accounted for roughly 80% of today's Nikkei Average gains. On the Prime Market today, advancing issues barely exceeded 1,000, accounting for only 65% of the total - a landscape no different from a moderately firm market in normal mode.

That said, this may be a concerning moment for those holding put options on the Nikkei Average or those short-selling leveraged Nikkei products on margin. Once the pendulum swings back toward recovery, risk-off unwinding tends to accelerate. While it's certainly viable to chase major AI-related stocks at this timing, caution is warranted for a while as AI algorithms involving futures can easily whipsaw investors. Among small and mid-cap stocks with catalysts, attention should be paid again to names repeatedly featured in this column that show near-term momentum potential: KITAGAWA SEIKI CO.,LTD. <6327> in AI data center-related, Mitsui High-tec, Inc. <6966> as a hidden Kioxia-related play, SIOS Corporation <3744> sharpening its AI solutions, DAIKI ALUMINIUM INDUSTRY CO.,LTD. <5702> against the backdrop of soaring aluminum prices, and pharmaceutical manufacturer SEIKAGAKU CORPORATION <4548> showing clear earnings recovery this fiscal year.

In tomorrow's schedule, market attention is high on the April nationwide Consumer Price Index (CPI) to be released before the opening. Additionally, a 3-month Treasury bill auction will be conducted during morning trading hours. The March Monthly Labour Survey (final figures) will also be announced. During afternoon trading, April nationwide supermarket sales will be disclosed. Overseas, data includes April UK retail sales, May German Ifo Business Climate Index, April U.S. Leading Economic Index, and May U.S. Consumer Sentiment Index (University of Michigan, final reading). A speech by Fed Governor Waller is also scheduled. Note that the U.S. bond market will have shortened trading hours as this is the trading day before Memorial Day.

Source: MINKABU PRESS

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