A recent research report on Japanese technology strategy by investment research firm Bernstein points out that significant rotation has occurred within the Japanese technology stock sector in 2026. The semiconductor and factory automation sectors, which performed best in the first half of the year, have underperformed the market since the second half, while previously lagging sectors such as software, IT services, and entertainment have begun to lead the gains.
As of mid-October, Japanese technology stocks had risen 32% year-to-date (equal weighted) and 75% (market capitalization weighted), indicating that large-cap technology stocks still dominate the year's performance.
Specifically, in the first half of the year, the Japanese semiconductor and equipment, factory automation, and electronic equipment sectors outperformed the benchmark by 74, 56, and 33 percentage points, respectively, but have lagged behind by 21, 21, and 5 percentage points since July. Conversely, the software, IT services, and entertainment sectors lagged by 35, 34, and 32 percentage points, respectively, in the first half of the year, but have outperformed by 40, 35, and 27 percentage points since July, representing a rotation of several tens of percentage points.
Bernstein believes that this sector rotation still has room to continue.
The relative earnings forecasts for the semiconductor, electronic equipment, and factory automation sectors have been revised upwards, and some valuation indicators are nearing high levels, while the earnings expectations for the entertainment, software, and hardware sectors have room for recovery. The bank therefore recommends increasing attention to the latter, while being wary of the risk that earnings expectations for the leading sectors in the first half of the year have peaked.
