Goldman Sachs upgrades Nittobo to Buy, driven by tighter T-glass supply-demand and volume and pricing upside in electronic materials from AI infrastructure.

Overview

This is a multi-theme equity research report from Goldman Sachs' The 720, centered on earnings forecast revisions in Japanese specialty chemicals and an upgrade of Nittobo. The report argues that T-glass supply-demand is tighter than previously expected, while demand for electronic materials from AI inference infrastructure, traditional semiconductor devices, and advanced packaging provides upside potential to earnings and valuations for Nittobo, SUMCO, Shin-Etsu Chemical, and JX Advanced Metals. The report also discusses global themes including Recruit, DISCO, Indian consumption and autos, Australian lithium, global copper, aluminum, FOCI, Chenbro, BYDE, BlueScope, US semiconductors, Netflix, and US banks.

Core views

The core view is that AI-related infrastructure investment is spreading from computing chips to upstream segments including electronic materials, wafers, advanced packaging, optical communications, and server racks, creating a broader volume and pricing upcycle. Nittobo's T-glass supply-demand is reassessed as significantly tight, prompting Goldman Sachs to raise its rating and earnings forecasts; Recruit is seen as a beneficiary of generative AI improving recruitment matching efficiency; DISCO benefits from generative AI, OSAT, HBM, CoWoS, and hybrid bonding trends in advanced packaging; and FOCI is viewed as a key beneficiary of optical network migration and co-packaged optics. Meanwhile, the report remains cautious on Australian lithium stocks, believing that the restart of idle mines and recovering capital expenditure will constrain free cash flow, while maintaining a constructive view on copper based on structural supply scarcity, declining ore grades, and infrastructure constraints.

Analysis framework

The report combines Goldman Sachs' top-down thematic analysis with bottom-up company forecasts: it first identifies macro and industry drivers such as AI infrastructure, the semiconductor cycle, materials supply-demand, metal supply constraints, and changes in consumer demand, then maps them to company-level forecasts for volume, pricing, gross margin, operating profit, EBITDA, free cash flow, and target prices. Rating changes are primarily supported by earnings forecast revisions, changes in supply-demand assumptions, valuation assessment, and relative upside.

Methodology notes

• equity_researchearnings_revision_and_target_price_update

  Earnings forecast and target price revisions

  Based on changes in supply-demand, pricing, costs, foreign exchange, capital expenditure, and industry cycles, the report adjusts FY3/27E–FY3/29E or 2026E–2028E earnings forecasts for multiple companies and updates their 12-month target prices accordingly.

• industry_supply_demandsemiconductor_materials_cycle

  Semiconductor materials supply-demand cycle

  The analysis of Nittobo, SUMCO, and DISCO focuses on the tightness of supply-demand for T-glass, 300mm wafers, advanced packaging, and electronic materials, as well as the impact of AI inference infrastructure and traditional semiconductor devices on volume and pricing.

• commodity_researchmetals_supply_scarcity_framework

  Metal supply scarcity framework

  The constructive view on copper derives from structural supply scarcity, declining ore grades, infrastructure constraints, and capital discipline; the cautious view on lithium derives from the restart of idle spodumene mines, rising supply, and pressure on free cash flow.

• Valuation methodsgs_factor_profile

  GS Factor Profile

  The disclosure section explains that Goldman Sachs compares stocks' positions relative to the market and industry peers across four attributes—Growth, Financial Returns, Multiple, and Integrated—with Integrated combining growth, returns, and valuation percentiles.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Nittobo

  Core positive exposure; the report's focus is an upgrade to Buy

  Strengths

  T-glass supply-demand is significantly tight, a new capital investment plan may be announced, and further pricing power exists.

  Weaknesses

  The investment case depends on the execution of new capacity plans and price increases; earnings upside may be limited if supply-demand eases or expansion timing changes.

  Comparison

  Compared with previous assumptions, Goldman Sachs materially raises its assessment of supply-demand tightness and pricing upside, and increases FY3/27E–FY3/29E OP forecasts.

  Risks

  T-glass demand below expectations, returns on capital expenditure below expectations, and a downturn in the semiconductor materials cycle.

• SUMCO

  Another Japanese semiconductor materials beneficiary; Buy maintained

  Strengths

  300mm wafer supply-demand is expected to tighten significantly through 2028E, and the target price is raised 20% to ¥6,140.

  Weaknesses

  Wafer demand and pricing remain exposed to semiconductor cycle fluctuations.

  Comparison

  Like Nittobo, SUMCO benefits from the spread of AI and traditional semiconductor device investment, but its core driver is 300mm wafer supply-demand.

  Risks

  Capacity releases above expectations, customer inventory adjustments, and a slowdown in semiconductor capital expenditure.

• Recruit Holdings

  AI application beneficiary; Buy maintained

  Strengths

  Generative AI is improving candidate recommendations, potentially increasing hiring speed and job-seeker satisfaction; Indeed US ARPJ is expected to grow 21% year on year in FY3/27E.

  Weaknesses

  Earnings forecasts are affected by foreign exchange and recruitment market conditions.

  Comparison

  The report views Recruit as the top pick in the internet sector, with the thesis focused on monetization at the AI application layer.

  Risks

  Slower hiring demand, slower-than-expected AI monetization, and changes in foreign exchange assumptions.

• DISCO

  Beneficiary of advanced packaging equipment and consumables; Buy maintained

  Strengths

  1Q shipments and sales were slightly above consensus, supported by demand from generative AI, OSAT, HBM, CoWoS, and hybrid bonding.

  Weaknesses

  Recent share price and industry performance may make trading more challenging.

  Comparison

  Compared with conventional semiconductor equipment names, DISCO has more direct exposure to the shift toward advanced packaging technologies.

  Risks

  Slower customer pull-ins, delays in advanced packaging capacity expansion, and yen or demand volatility.

• FOCI

  Beneficiary of optical network migration; coverage initiated with Buy

  Strengths

  FOCI benefits from rising penetration of fiber array units in co-packaged optics switches during the AI infrastructure cycle; net profit CAGR is expected to reach 250% from 2025 to 2030E.

  Weaknesses

  The market is concerned about alternative technologies such as GlassBridge.

  Comparison

  Goldman Sachs believes alternative technologies are more likely to be complementary than substitutive, while specification upgrades should continue to drive ASP and gross margin higher.

  Risks

  Changes in technology paths, customer certifications below expectations, and capacity or yield expansion below expectations.

• Australian lithium stocks

  Cautious or negative allocation direction

  Strengths

  Near- to medium-term lithium price and long-term spodumene price assumptions have been raised somewhat.

  Weaknesses

  The restart of idle mines will add more than 1Mtpa of supply into CY27, while recovering capital expenditure raises the free cash flow breakeven.

  Comparison

  Compared with copper, Goldman Sachs is more cautious on lithium equities and believes share prices reflect pricing of approximately US$1,600/t.

  Risks

  Supply restarts faster than expected, cost inflation, and free cash flow below expectations.

• Global copper

  Constructive cyclical allocation direction

  Strengths

  Structural supply scarcity, declining ore grades, infrastructure constraints, and capital discipline support copper prices and high-quality copper mining assets.

  Weaknesses

  Growth depends on brownfield expansions, selected greenfield projects, and technology improvements, with relatively high project execution risk.

  Comparison

  Compared with lithium, copper faces more structural supply constraints, while management teams place greater emphasis on balance sheet discipline and social license.

  Risks

  Project permitting delays, cost inflation, weaker macro demand, and key mines ramping up below expectations.

• BlueScope Steel

  Coverage resumed with Buy

  Strengths

  Higher US hot-rolled coil prices and steel spreads, a strong balance sheet, and improving free cash flow; long-term margin growth is underestimated.

  Weaknesses

  Steel prices are highly cyclical, and valuation is affected by macroeconomic and demand fluctuations.

  Comparison

  The report notes that the company previously rejected an acquisition proposal of A$34 per share, while Goldman Sachs' target price is A$37.7.

  Risks

  A decline in US steel spreads, weaker demand, and uncertainty around M&A or capital allocation.

Key data

• Nittobo ratingUpgrade to BuyGoldman Sachs upgrades Nittobo to Buy, primarily due to tighter T-glass supply-demand and a potential new capital investment plan.
• Nittobo 12-month target price¥4,820The target price is raised alongside higher FY3/27E–FY3/29E operating profit forecasts.
• Nittobo operating profit forecast revision+2% to +26%Goldman Sachs raises FY3/27E–FY3/29E OP forecasts to reflect assumptions for another round of price increases.
• SUMCO 12-month target price¥6,140The target price is raised by 20% as 300mm wafer supply-demand is expected to tighten significantly through 2028E.
• Recruit 12-month target price¥13,000Raised from ¥10,800; the report maintains Buy and calls Recruit its top pick in the internet sector.
• DISCO 12-month target price¥100,000Raised from ¥95,000 as 1Q shipments and sales were slightly above market consensus and AI and advanced packaging demand remains strong.
• Titan 1QFY27 revenue growth+41% yoyConsolidated revenue grew 41% year on year, while domestic jewelry revenue grew 39%.
• Australian lithium supply additionsover 1Mtpa into CY27The restart of previously idle spodumene mines could add more than 1Mtpa of supply.
• 2027 aluminum price forecast$2,700/tGoldman Sachs lowers its 2027 average LME aluminum price forecast from $2,950/t to $2,700/t.
• FOCI rating and target priceBuy, NT$864Goldman Sachs initiates coverage with a Buy rating and forecasts a 250% net profit CAGR from 2025 to 2030E.
• BYDE target priceHK$21Lowered from HK$40, with the rating downgraded from Neutral to Sell.
• BlueScope Steel target priceA$37.7Goldman Sachs resumes coverage with a Buy rating, benefiting from higher US hot-rolled coil prices and steel spreads.

Impact & implications

For portfolios, the report broadens the AI infrastructure diffusion trade: in addition to chips and cloud capital expenditure, electronic materials, wafers, advanced packaging equipment, optical communications components, server racks, and selected industrial materials may also benefit. Nittobo's upgrade indicates that Goldman Sachs is placing greater emphasis on T-glass supply bottlenecks and pricing power; views on DISCO, FOCI, and US semiconductors show that advanced packaging and data center construction remain core themes. Conversely, Australian lithium, aluminum, and parts of the consumer electronics chain show that supply recovery, cost pressure, and weak end demand continue to weigh on some cyclical assets.

Risks

• If AI infrastructure investment slows, volume and pricing upside for electronic materials, wafers, advanced packaging, and optical communications companies may fall short of expectations.
• Nittobo's investment case partly depends on sustained tight T-glass supply-demand, a new capital investment plan, and the execution of another round of price increases in FY3/29E.
• Changes in the semiconductor cycle, customer inventories, foreign exchange, and capital expenditure timing may affect earnings forecasts for SUMCO, DISCO, US semiconductors, and related materials companies.
• The Australian lithium market faces the risk of idle mine restarts and increased supply, while recovering capital expenditure may also pressure free cash flow.
• Copper mining and industrial metal projects face permitting, cost inflation, infrastructure bottleneck, and social license risks.
• Weak consumer electronics demand, high memory costs, and a slowdown in the electric vehicle market are key risk factors behind BYDE's downgrade to Sell.
• This multi-theme weekly report covers many companies and industries; conclusions on individual companies should be further verified against full company reports, valuation models, and disclosure documents.

What to watch

• Whether Nittobo announces a new capital investment plan in the near term and whether T-glass price increases are realized around FY3/29E.
• Whether AI inference infrastructure and traditional semiconductor device investment continue to drive demand for electronic materials, 300mm wafers, and advanced packaging.
• DISCO shipment momentum after 2Q and order trends related to HBM, CoWoS, and hybrid bonding.
• FOCI's fiber array unit penetration in co-packaged optics switches, customer certifications, and progress in automated capacity expansion.
• The pace of Australian spodumene mine restarts, FY27 growth capital expenditure, and changes in the free cash flow breakeven.
• The Antofagasta Centinela expansion, Capstone Santo Domingo decision, First Quantum Cobre Panama developments, and Freeport Grasberg ramp-up.
• The direction of revisions to hyperscaler CapEx, server CPU, ASIC, memory, and fab equipment spending in US semiconductor 2Q earnings reports.
• Whether the China mobility technology industry sees a beta recovery around September and whether 2Q margins confirm a bottom.