We anticipate that the market will more rigorously scrutinize the sustainability of AI investments by hyperscale cloud service providers, including funding sources, return on investment, and return on invested capital (ROIC). One metric for measuring the impact of AI investments on the stock market is the regional distribution of the MSCI Information Technology sector (excluding software and services): the US accounts for 65%, Emerging Asia 19%, Japan 4%, and Europe 4%. As of the end of September, AI investment accounted for less than 10% of the overall impact on the Japanese market. If the market begins to worry about AI investments failing to meet expectations or the growth rate being unsustainable, the impact of AI investments on each regional market may correspond to their market capitalization weight. However, in terms of overall market capitalization, the regional proportions of the Information Technology sector (excluding software and services) are as follows: US 28%, Emerging Asia 26%, Japan 16%, and Europe 6%. Considering the growth opportunities and volatility brought by AI, we believe that the Japanese stock market possesses a structural advantage: it can benefit from the positive impact of AI growth while offsetting the negative impacts such as volatility through other sectors.
