Is Kioxia's Rally Over? A Cooler-Headed View Is Needed Once the Memory Shortage's "Bonus Stage" Fades

By Ryoichi Ishi - Market writer

Kioxia Briefly Became Japan's No. 1 Stock by Market Cap

In the first half of 2026, Japan's domestic stock market climbed on the back of an AI-driven rally, with the Nikkei average briefly breaking through the 70,000 yen mark in June. Since late June, however, the domestic market has pulled back, briefly dipping below 65,000 yen in July, and the rally has stalled.

If there is one stock that symbolizes the market of the first half of 2026, many investors would point to Kioxia Holdings Corporation <285A>. Starting the year at 11,350 yen, Kioxia shares climbed to a high of 112,700 yen on June 22 - roughly a tenfold increase, making it a "ten-bagger" (market slang for a stock that has risen tenfold) in just six months. The stock also briefly claimed the top spot in Japan's domestic market-cap rankings, and its surge was repeatedly a hot topic throughout the first half of 2026.

The Higher the Mountain, the Deeper the Valley: Kioxia's Share-Price Reversal

Having climbed to a near-ten-bagger in the first half of 2026, Kioxia shares began falling as the broader market retreated from late June.

After peaking at 112,700 yen on June 22, the stock's decline accelerated, and it fell to 52,110 yen by July 17. That's a drop of more than 50%. Investors who bought at the very top have seen their investment shrink to roughly half in under a month. There's a market saying that "the higher the mountain, the deeper the valley," and Kioxia's price action has embodied that phrase.

Looking at the market as a whole, the domestic market-cap ranking that Kioxia briefly topped is now led again by Mitsubishi UFJ Financial Group, Inc <8306>, followed by TOYOTA MOTOR CORPORATION <7203> - a sign that this leg of the AI rally has, at least for now, run its course from a market-cap perspective as well.

Stock markets are prone to overshooting, and it seems increasingly likely that Kioxia's brief run to the top of the domestic market-cap rankings was itself an overshoot.

Kioxia Holdings' Earnings

Let's take a fresh look at the earnings (under IFRS) behind Kioxia's sharp share-price rise in 2026.

- Fiscal year ended March 2025: revenue of 1.7064 trillion yen, operating profit of 451.7 billion yen, net profit attributable to owners of the parent of 272.3 billion yen

- Fiscal year ended March 2026: revenue of 2.3376 trillion yen, operating profit of 870.3 billion yen, net profit attributable to owners of the parent of 554.4 billion yen

The company has not disclosed full-year guidance, but it has released its forecast for the first quarter (Q1).

- Q1 of the fiscal year ending March 2027: revenue of 1.75 trillion yen, operating profit of 1.298 trillion yen, net profit attributable to owners of the parent of 869 billion yen

Revenue and profit both jumped sharply in fiscal 2026 versus the prior year. But what really stands out is the Q1 fiscal 2027 figure: Kioxia is projecting quarterly profit that exceeds its entire prior fiscal year's profit. Simply annualizing that quarterly profit works out to roughly sixfold growth - and it's no exaggeration to call this the driving force behind the 2026 share-price surge.

For comparison, here are the results for the fiscal year ended March 2026 at SoftBank Group Corp <9984>, another company heavily focused on AI investment.

- Fiscal year ended March 2026: revenue of 7.7986 trillion yen, net profit attributable to owners of the parent of 5.0022 trillion yen

Both stocks are viewed as AI plays, and Kioxia's market capitalization has overtaken SoftBank Group's (as of July 23, 35.5168 trillion yen versus 32.9173 trillion yen). On profit, though, SoftBank Group is well ahead. The two aren't directly comparable by industry - SoftBank Group is an investment holding company while Kioxia is a semiconductor maker - but for any stock viewed as an AI play, it's worth keeping its profit level relative to peers in mind.

Is Kioxia Finished, or Will It Recover? Key Points to Watch

Even after falling by roughly half from its peak, Kioxia's high for the year is still about tenfold its starting price, so the pullback is limited relative to the prior gain. The AI rally has paused, but looking at Japanese and US equity indices, conditions have not reached the point of an "AI bubble bursting." Major US companies continue to invest heavily in AI, so capital is still flowing into the sector - meaning a second act of the AI rally could eventually begin. That said, markets are currently in the thin, quiet trading typical of the summer lull, making it hard to predict when that second act might start.

If and when a second act of the AI rally does start, can Kioxia shares stage another major rally? Here are the key points to watch for the company right now:

- The exit of Bain Capital, its major shareholder

- Investment announcements from memory makers

- The rise of Chinese competitors

The Exit of Bain Capital, Its Major Shareholder

Kioxia traces its roots to Toshiba's memory division, which was spun off with Bain Capital's support amid Toshiba's financial crisis. Toshiba remains a major shareholder of Kioxia Holdings today, though its stake has fallen to below 20%.

After separating from Toshiba, Kioxia went public in December 2024. Following the IPO, the stock languished, partly because investors shied away from a company whose largest shareholder was a fund - an image associated with heavy selling pressure. Bain Capital, as the top shareholder, could not sell its entire stake at once, but on the back of the sharp rise in the share price in 2026, reports indicate it had sold off its entire holding by July 2026.

For Kioxia's management, Bain Capital's exit is not necessarily a negative - it gives management more freedom. From a share-price perspective, though, it raises a question: with Bain Capital, whose central mission was pushing the stock price higher, no longer a shareholder, management's own priority on lifting the share price could decline.

The semiconductor industry is, above all, capital-intensive. Kioxia Holdings announced in June that it will begin paying dividends, but in reality, companies would generally rather plow money into capital investment than send it out the door through shareholder returns. With Bain Capital no longer a shareholder, Kioxia may be less hungry to drive the stock higher in any future second act of the AI rally.

Investment Plans From Memory Makers

Running AI chips requires HBM (High Bandwidth Memory), the memory built for AI workloads - even Nvidia's AI chips cannot function without it. That means that no matter how much TSMC ramps up production of Nvidia's AI chips, if HBM supply doesn't keep pace, HBM becomes the bottleneck that prevents finished AI chips from shipping as products.

Only three companies can manufacture HBM: Samsung Electronics, SK Hynix, and Micron. As these three prioritize HBM production, which carries higher margins, other memory production has taken a back seat - contributing to a global memory shortage and rising memory prices.

Kioxia does not make HBM. Its NAND flash memory relies on advanced technology, but it serves smartphone and data-center applications rather than AI applications. Demand for data-center memory has also been tight, which has helped drive Kioxia's share price higher.

Kioxia's stock surged within what might be called a "bonus stage" - a period of unusually favorable conditions created by the broader memory shortage. That said, in response to the tight memory market, memory makers have been announcing major investment plans one after another. Micron, which operates a plant in Hiroshima, announced a 1.5 trillion yen investment in that facility, aimed at expanding its HBM production capacity. It will still take time before the new capacity comes online, but for Kioxia and its peers, the "bonus stage" of rising memory prices driven by tight supply will eventually end - meaning the kind of share-price gains seen so far may not be repeated.

The Rise of Chinese Competitors, Led by CXMT

China's largest DRAM maker, CXMT (ChangXin Memory Technologies), is scheduled to list on the Shanghai Stock Exchange's STAR Market - a board for growth companies - on July 27. CXMT is already the world's fourth-largest DRAM manufacturer.

Xi Jinping's government has long focused on building up domestic semiconductor capacity, and CXMT's growth can be seen as a result of that effort. China's government continues to push policies to strengthen domestic chipmaking, and CXMT, along with other Chinese manufacturers, may keep gaining ground.

For the memory industry that Kioxia belongs to, CXMT's growth represents a new competitor entering the field, boosting industry-wide memory supply, which could ease the current tightness in the memory market.

US companies currently face restrictions on dealing with CXMT. However, reports indicate Apple has been lobbying for those restrictions to be eased. If US companies' trading restrictions with CXMT are relaxed going forward, CXMT's growth could accelerate by leveraging business ties with US firms - so developments among CXMT and other Chinese semiconductor makers are worth continuing to watch closely.

Free of Toshiba and Bain, Kioxia Could See Faster Growth

With Bain Capital no longer a shareholder, Kioxia's management now has significantly more freedom to run the company as it sees fit. Under Toshiba, the company reportedly struggled to make free investment decisions because of constraints from Toshiba's head office. Even after being spun off from Toshiba, its IPO process was largely driven by its major shareholder, Bain Capital - and along the way, the IPO was postponed twice for reasons that included share-price considerations.

As one of the few semiconductor makers remaining in Japan, Kioxia has real further growth potential. With management freedom now restored and the ability to make the swift decisions essential in the semiconductor industry, Kioxia’s accelerating growth raises hopes that its share price could ultimately rise even further than it did in the first act of the AI rally.

Ever since its founding under Toshiba, Kioxia's management decisions had effectively been constrained - this is the first time in the company's history it has been free to make its own judgments. Without a parent company's protection, there is a risk the business could stumble. But with faster decision-making now possible, there is also a chance it could see outsized growth.

The Memory Market's "Bonus Stage" Will Eventually End - A Level-Headed View Is Essential

The AI-driven rally of the first half of 2026 has run its course, for now. South Korea's market, heavily influenced by Samsung Electronics and SK Hynix, has seen its July decline become something of a social issue, but the Japanese and US markets themselves have settled into a somewhat calmer state after peaking, with daily swings but no clear direction.

Investment competition in AI, led by US companies, continues, leaving open the possibility of a second act for the AI rally. But for Kioxia's stock to rise as much as it did in the first act, it will need to clear several hurdles. From a share-price standpoint in particular, the impact of losing a shareholder whose top priority was pushing the stock higher cannot be ignored. And the memory-market "bonus stage" that has supported Kioxia's share-price gains will eventually come to an end.

If a second act of the AI rally begins, Kioxia shares would likely rise along with AI-related stocks broadly. But investors are a greedy bunch, and they remember the last rally; if the next one falls short, Kioxia risks being viewed as a laggard of the AI trade.

Now that the excitement of the AI rally's first act has faded, it may be worth stepping back to take a level-headed look at where Kioxia's share price goes from here - weighing its underlying fundamentals and profitability against those of its peers.