Japan's largest tech fund suggests AI stocks are not in a bubble and still have room to grow. Yasuyuki Fukuda, chief portfolio manager of Nomura Asset Management's Japan Information & Electronics Equity Fund, stated that the AI market has "just entered Act Two" and is "not in a bubble phase." Concerns are mounting over the global AI boom, which has propelled the market capitalization of U.S. chip giant Nvidia above $3 trillion—its highest valuation ever. With seven major tech firms now accounting for over a third of the S&P 500's weighting, investors question whether this signals overheating and a potential asset bubble burst.

Nomura's fund has outperformed, delivering a 49% total return year-to-date as of November 6. In comparison, the TOPIX (including dividends) returned 22%, while the TOPIX Electric Appliances Index (including dividends) gained 30%. The fund also surpassed the U.S. Nasdaq Composite Index.

Fukuda noted that today's IT landscape differs starkly from the dot-com bubble collapse 25 years ago, when he covered U.S. and European tech stocks as an analyst. Back then, telecom infrastructure investments were led by profitless startups, leading to financing difficulties and a crash. Now, cash-rich giants like Meta, Google, and Amazon are driving sustainable infrastructure spending.

He described data center and cloud infrastructure investments as "Act One" of the AI growth story. The next wave, he said, will be fueled by traditional infrastructure firms—such as telecom and utilities—ramping up capital expenditures, benefiting Japanese electronic component makers like Furukawa Electric and cable/wire stocks.

Since Fukuda began managing the portfolio in April 2011, its assets under management surged from ¥7.2 billion to ¥83.3 billion by October, making it Japan's largest electronics-focused fund. Top holdings as of September-end included SoftBank Group, Fujikura, Furukawa Electric, Sony Group, and Tokyo Electron.

One of his most successful moves was increasing SoftBank Group exposure in May 2024 when shares traded below ¥10,000. The stock later hit a record close above ¥27,000 on October 29 before retreating to ¥21,300. SoftBank, a major shareholder in ARM Holdings—which designs AI processors—is also involved in OpenAI's "Stargate" project and a proposed $550 billion U.S. investment under a Trump-era trade deal.

Fukuda cautioned, "While broad market rallies are positive, gains driven by a handful of stocks—like the S&P 500—are fragile. We’re concerned about Japan’s similarly narrow leadership, where SoftBank, Advantest, and Fast Retailing account for much of the Nikkei 225’s rise."