Goldman Sachs maintains Buy on TDK, focusing on the AI ecosystem as the next growth pillar

Overview

This report is Goldman Sachs' summary of TDK's management meeting and an update to its investment view. The first part of the meeting was a Q&A with CEO Noboru Saito, and the second part was a Q&A with outside directors. The core conclusion of the report is that TDK's management is engaging in constructive discussions around sustainable growth, reaffirming management quality and earnings growth potential; the key to future stock valuation will depend on how much earnings AI ecosystem-related businesses can contribute during the next mid-term plan.

Core views

Goldman Sachs believes TDK has the potential to capture AI-related opportunities through its own technologies and business development capabilities. Under the current mid-term plan, rechargeable batteries and HDD-related products are performing strongly, and the sensor business has clear targets; however, profit growth in passive components is lagging due to the EV slowdown. The company plans to turn AI-related businesses into a growth pillar after FY3/28, spanning HDD, MLCC, inductors, batteries, SPE, software, and components related to smart devices.

Analysis framework

The report mainly analyzes management meeting Q&A, outside directors' statements on governance and investment discipline, and Goldman Sachs' existing valuation framework. The investment view is developed across several dimensions, including execution of the mid-term plan, resource allocation to AI-related businesses, technological advantages across product lines, governance quality, and target price valuation methodology.

Methodology notes

• Valuation methodEV/GCI relative to CROCI/WACC and EV/DACF multiple

  12-month target price

  Goldman Sachs sets a 12-month target price of ¥3,000 for TDK, based on FY3/28E EV/GCI relative to CROCI/WACC, and applies a 10% premium to the industry average 8x EV/DACF multiple; this assumption implies approximately 24x FY3/27E P/E.

• Factor analysisGS Factor Profile

  Growth, financial returns, valuation multiples, and composite percentile

  Goldman Sachs Factor Profile compares individual stocks with the market and industry peers using growth, financial returns, valuation multiples, and composite indicators; growth uses forward sales, EBITDA, and EPS growth, financial returns use ROE, ROCE, and CROCI, and valuation multiples use metrics such as P/E, P/B, P/D, EV/EBITDA, EV/FCF, and EV/DACF.

• M&A frameworkM&A Rank

  Probability score of being a potential acquisition target

  Goldman Sachs uses an M&A rank of 1 to 3 to assess the probability that a covered company becomes an acquisition target, where 1 indicates high probability, 2 medium probability, and 3 low probability; when the rank is 1 or 2, M&A factors may be incorporated into the target price.

Asset mapping & comparison

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

• TDK (6762.T)

  Primary covered company and Buy-rated target in the report

  Strengths

  A diversified technology portfolio spanning rechargeable batteries, HDD, sensors, MLCC, inductors, and SPE; management quality is recognized by Goldman Sachs, and several existing businesses are progressing ahead of mid-term plan targets.

  Weaknesses

  The company acknowledges that development of AI-related businesses still lags; profit growth in passive components is weighed down by the EV slowdown; five business units remain under close monitoring and require clearer strategic direction.

  Comparison

  The valuation method uses the industry average EV/DACF multiple of 8x with a 10% premium, reflecting Goldman Sachs' view that TDK deserves some quality and growth premium relative to the industry.

  Risks

  Declining smartphone production, rising input costs, yen appreciation, and insufficient speed of AI business commercialization and capital allocation discipline.

Key data

• Meeting time2026-05-25 14:45The meeting included Q&A with CEO Noboru Saito and outside directors.
• RatingBuyThe report explicitly states that the Buy rating is maintained.
• Target price¥3,00012-month target price.
• Valuation assumptionIndustry average EV/DACF of 8x with a 10% premiumImplies approximately 24x FY3/27E P/E.
• Sensor targetAchieve double-digit OPM in FY3/27The company's target is for the sensor business to reach a double-digit operating profit margin in FY3/27.
• Current SPE sales¥20-30 bnThe company hopes to increase SPE sales related to wafer processing and bonding equipment to several times the current level.
• Battery AI-related timingUPS from FY3/26, BBU from 2H3/27In rechargeable batteries, the company emphasizes advantages in LFP materials and design structure, while seeking broad customer development.
• Timing for GPU-use MLCCSecond half of the next mid-term planSmall-sized, low-voltage, high-capacitance MLCCs are planned for use in GPU products.

Impact & implications

If TDK can convert its AI ecosystem businesses into meaningful earnings contributions, the market may reassess the quality of its long-term growth and valuation center. In the short term, better-than-expected execution in HDD and rechargeable batteries provides a foundation for the next phase of growth; in the medium term, applications of MLCC, inductors, SPE, and batteries in AI infrastructure will determine valuation upside. From a governance perspective, outside directors emphasized both speed and discipline, which should help reduce the risk of mistakes in capital expenditure and business expansion.

Risks

• A decline in smartphone production could affect demand.
• Rising input costs could compress profit margins.
• Yen appreciation could negatively affect earnings and valuation.
• AI-related businesses are currently lagging, and if they fail to generate earnings contributions in the next mid-term plan, valuation support may be insufficient.
• The passive components business is affected by the EV slowdown, and the reallocation of resources toward AI applications requires execution validation.

What to watch

• Revenue and profit contribution from AI ecosystem businesses in the next mid-term plan after FY3/28.
• Whether rechargeable batteries and HDD-related products can continue to exceed FY3/25-FY3/27 mid-term plan targets.
• Whether the sensor business can achieve double-digit OPM in FY3/27.
• Progress in customer adoption for GPU-use MLCC, small-sized low-voltage high-capacitance products, and vertical power delivery inductors.
• Execution progress of UPS and BBU battery businesses from FY3/26 to 2H3/27.
• Whether SPE sales can increase from ¥20-30 bn to several times that level.
• Whether management and outside directors can maintain a balance among speed, capital expenditure, and discipline in business selection.