Morgan Stanley believes the pullback in Japanese wire and cable stocks is mainly due to sentiment and supply-demand factors, while fundamentals remain solid

Overview

This report focuses on the recent share price correction in Japan's wire and cable industry. Morgan Stanley notes that after Fujikura raised its full-year earnings guidance on June 18, the share prices of the three wire and cable companies rose until around June 22, and then pulled back significantly. The report believes the correction was mainly due to sector rotation, profit-taking, concerns about the timing of CPO adoption, a lack of catalysts ahead of 1Q earnings, and a broader adjustment in AI-related stocks, rather than weakening industry fundamentals.

Core views

The core view is that fundamentals for Japan's wire and cable-related names remain solid, supported by AI data center demand for optical communication components, April-May export data, and upward revisions to consensus earnings expectations; the current share price pullback is viewed as a buy-on-weakness opportunity. Furukawa Electric saw a larger pullback because its prior gains had been greater.

Analysis framework

The report combines relative performance analysis, industry catalyst tracking, and earnings expectation monitoring: it first compares the performance of the three companies relative to TOPIX from June 22 to July 1, then breaks down the factors behind the pullback, and finally uses AI data center demand, export data, and the FactSet consensus trend to verify whether fundamentals have deteriorated.

Methodology notes

• Relative Performance AnalysisShare Price Performance Relative to TOPIX

  Measure the strength of the pullback within the industry using percentage-point changes in stocks relative to TOPIX.

  The report uses the performance of the three companies relative to TOPIX from June 22 to July 1 as quantitative evidence of the recent share price correction.

• Fundamental VerificationCross-Validation of Demand and Consensus Expectations

  Assess the quality of fundamentals by combining the use of optical communication components in AI data centers, export statistics, and the FactSet consensus trend.

  The report believes consensus expectations are still moving higher, indicating that the price correction is more about sentiment and supply-demand factors than a deterioration in earnings trends.

• Catalyst TrackingEarnings Event Window

  Focus on how releases from hyperscalers, Corning, and 1Q earnings may validate the optical communications and data center chain.

  The report points out that earnings events in late July may become the next phase of share price catalysts.

Asset mapping & comparison

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

• Fujikura (5803.T)

  A Japanese wire and cable and optical communication components-related name; the report mentions that the company raised its full-year earnings guidance on June 18.

  Strengths

  Fundamentals are viewed as solid, benefiting from increased use of optical communication components in AI data centers, and its share price pullback relative to TOPIX was smaller than that of the other two companies.

  Weaknesses

  The rating is Equal-weight, and the report does not provide a stronger overweight view on the stock.

  Comparison

  Its performance relative to TOPIX from June 22 to July 1 was -3.4ppt, a much smaller pullback than Furukawa Electric and Sumitomo Electric.

  Risks

  Delays in the timing of CPO adoption, a broad correction in AI-related stocks, a lack of short-term catalysts, and weakening market sentiment.

• Furukawa Electric (5801.T)

  A Japanese wire and cable industry name rated Overweight.

  Strengths

  The report still views fundamentals as solid, and its stock rating is the most positive among the three companies.

  Weaknesses

  Because its previous gains were larger, its recent pullback has been the most pronounced.

  Comparison

  Its performance relative to TOPIX from June 22 to July 1 was -22.9ppt, making it the weakest among the three companies in terms of pullback.

  Risks

  Momentum capital reversal, profit-taking pressure, valuation volatility in the optical communications theme, and weakening sentiment across the AI chain.

• Sumitomo Electric (5802.T)

  A Japanese wire and cable industry name rated Equal-weight.

  Strengths

  It is part of the AI data center and optical communications demand-related supply chain and benefits from solid industry fundamentals.

  Weaknesses

  The rating is Equal-weight, and disclosures show Morgan Stanley holds 1% or more of its common equity.

  Comparison

  Its performance relative to TOPIX from June 22 to July 1 was -14+ppt, placing its pullback between Furukawa Electric and Fujikura.

  Risks

  Conflict-of-interest disclosure, market risk, concerns over delayed CPO adoption, and a lack of clear short-term catalysts.

• Japan's Wire and Cable Industry

  The industry theme covered by the report, with an industry view of Attractive.

  Strengths

  AI data center demand for optical communication components, export statistics, and upward revisions to consensus expectations jointly support industry fundamentals.

  Weaknesses

  In the short term, share prices are vulnerable to crowded AI-theme positioning, a catalyst vacuum, and shifts in sentiment.

  Comparison

  The report uses TOPIX as the benchmark for the Japanese market and observes divergence in relative performance among the three companies within the industry.

  Risks

  CPO adoption timing falling short of expectations, a broad correction in AI-related stocks, a lack of new information ahead of 1Q earnings, and a decline in global risk appetite.

Key data

• Report Date2026-07-01 01:18 PM GMTThe report was published by Morgan Stanley MUFG Securities Co., Ltd., and the analyst is Yu Shirakawa.
• Industry ViewAttractiveThe industry view on Japan's wire and cable sector is Attractive, which usually corresponds to being more attractive than the relevant broad market benchmark over the next 12-18 months.
• Recent Relative PerformanceFurukawa Electric -22.9ppt; Sumitomo Electric -14+ppt; Fujikura -3.4pptPerformance relative to TOPIX from June 22 to July 1; Sumitomo Electric's figure is presented as in the original text.
• Stock Ratings and PricesFujikura E, ¥5,826; Furukawa Electric O, ¥4,351; Sumitomo Electric E, ¥2,834Prices are as of 2026-07-01; rating dates are Fujikura 2026-04-08, Furukawa Electric 2026-04-08, and Sumitomo Electric 2026-01-16.
• DisclosuresMorgan Stanley holds 1% or more of the common equity of Sumitomo Electric and expects or intends to seek investment banking compensation from the three companies.This disclosure indicates that the objectivity of the research may be affected by conflicts of interest, and investors should treat the research report as only one factor in decision-making.

Impact & implications

If the report's judgment is correct, the current pullback may provide a reallocation window into Japan's AI data center optical communications chain, especially as consensus expectations continue to move higher and late-July earnings validate demand. However, if concerns over delayed CPO adoption intensify and AI-related stocks continue to fall broadly, short-term valuation and sentiment pressure may persist.

Risks

• Delays in the timing of CPO adoption may weigh on sentiment toward optical communications-related names.
• If AI-related stocks continue to correct broadly, valuations in the wire and cable and data center chain may remain under pressure.
• With a lack of significant catalysts ahead of 1Q earnings in late July, short-term share prices may continue to be affected by capital supply and demand.
• Morgan Stanley has disclosed investment banking or service relationships with Fujikura, Furukawa Electric, and Sumitomo Electric, so the research should be read alongside the conflict-of-interest disclosure.
• Ratings and industry views may change, and historical prices have not been adjusted for stock splits.

What to watch

• Guidance from hyperscaler earnings in late July on AI data center capital expenditure and optical communications demand.
• Signals in Corning's earnings regarding optical communications and data center demand.
• 1Q results from Japanese wire and cable companies and management updates to full-year guidance.
• Whether FactSet consensus expectations continue to move higher.
• Whether there is further evidence of delay or renewed acceleration in the timing of CPO adoption.
• Whether export statistics after April-May can sustain the improving trend.