Intensifying Chinese memory competition and the turmoil of the CoreWeave shock, the AI paradigm shift (from training to inference), and the approach of the full-scale earnings season
1. Weekly Market Overview: A sharp decline for the first time in 5 weeks and the shock of the Nikkei 225’s ‘3318-point drop’
The stock market for the third week of October 2026 (October 12-16) was a historically turbulent week, as the strong upward trend that had continued until just before reversed, with intense selling flooding in, particularly for high-tech and AI-related stocks.
The Nikkei 225 stock average saw a sharp decline of over 5% on a weekly basis this week, marking its first significant drop in five weeks. In particular, on Thursday, October 15, it recorded its largest single-day decline of the year, falling 3,318 points from the previous day. This drop was a historic crash comparable to the third-largest decline in history in the entire Japanese stock market, and market sentiment briefly took on a panicked appearance.
The direct triggers for this unprecedented sharp decline were mainly two external factors. First, the U.S. Consumer Price Index (CPI) for September exceeded market expectations for both the headline and core figures, leading to a resurgence of caution regarding the persistence of U.S. inflation and additional interest rate hikes. Second, regarding the fundraising of CoreWeave, an emerging U.S. AI cloud company, the company’s corporate bond prices plummeted. This caused concerns about overinvestment (the CoreWeave shock) to erupt in the market, with people asking, ‘Will the massive capital investment in AI infrastructure slow down?’
However, by Friday the 16th, autonomous buying back against the historic sharp decline of the previous day entered the market, and the Nikkei 225 saw its first rebound in seven days. Although it was pushed down by weekend-specific profit-taking toward the close, a dynamic sector rotation from AI-related stocks to undervalued domestic demand stocks and stocks with strong earnings was functioning in the depths of the market, and the market as a whole did not unilaterally collapse.
2. Analysis of the weekly Japanese and U.S. stock market movements and the macro environment
To understand this week’s market, it is necessary to accurately grasp the ripple path of the three-stage negative factors that cascaded from the beginning of the week: ‘concerns about semiconductor memory,’ ‘upside surprise in U.S. inflation indicators,’ and ‘Thursday’s CoreWeave shock.’
[Trends in the first half of the week] Concerns over intensifying Chinese memory competition hit the Japanese stock market after the long weekend
The Tokyo stock market this week began trading on Tuesday the 13th, following the Sports Day holiday weekend. However, reflecting a dislike for overseas news during the holiday, selling led by semiconductor stocks took precedence from the opening.
What unsettled the market was the report that circulated during the closure that ‘a major Chinese memory semiconductor manufacturer has succeeded in developing new advanced technology and products.’ Until now, the global semiconductor memory market has been dominated by major players such as South Korea’s Samsung Electronics and SK Hynix, U.S.-based Micron Technology, and Japan’s Kioxia. However, concerns that future price competition would intensify due to the technological catch-up by Chinese companies spread rapidly, and profit-taking selling expanded for semiconductor-related stocks that had been bought at a rapid pace until recently.
However, looking at the export price indices for DRAM and NAND flash memory published by the Bank of Korea, a strong upward trend continues even now. Global real demand, centered on generative AI, is extremely robust, and the supply-demand balance for memory itself remains tight. The report on the new technology development by Chinese companies was strongly used as a convenient excuse for profit-taking on high-tech stocks that were at high levels, and the upward trend in memory prices itself has not collapsed. Therefore, while it is necessary to be cautious about the possibility of continued short-term stock price adjustments, there is no change in the structure where market improvement boosts the performance of related companies, and phases where stock price adjustments progress can rather be seen as a good opportunity to increase medium- to long-term investment appeal.
[Thursday’s massive crash] The ‘U.S. CPI upside surprise’ and ‘CoreWeave shock’ behind the 3,318-point drop
The final blow to the stock market, which had been trending weakly until mid-week, was the massive crash of 3,318 points on the Nikkei 225 that occurred on Thursday the 15th. This sharp decline occurred because macro interest rate concerns and micro AI investment concerns completely overlapped.
The first factor is the results of the September CPI announced in the U.S.. Both the headline and core indices exceeded market expectations, highlighting the reality that inflationary pressure in the U.S. remains persistent. Following the upside surprise in the CPI, movements to price in future additional interest rate hikes temporarily strengthened in the U.S. bond market, and the rise in long-term interest rates increased the valuation adjustment pressure on growth stocks in general. However, the change in the interest rate hike probability priced in by the market itself remains within a small range. Market participants do not see the FRB’s (Federal Open Market Committee) policy scenario as having changed fundamentally based on this CPI alone, and are prepared to comprehensively check future employment statistics and economic indicators.
The second factor, which dealt a more direct and devastating blow, was ‘the sharp drop in CoreWeave’s corporate bonds.’ CoreWeave is a leading U.S. emerging unicorn company that provides AI-specialized cloud infrastructure by procuring large quantities of NVIDIA GPUs. It had attracted immense attention in the market as a standard-bearer for AI infrastructure expansion. However, concerns about financial health and a sharp increase in borrowing costs emerged regarding the company’s massive fundraising (corporate bond issuance and borrowing), leading to a situation where the company’s corporate bond prices plummeted in the secondary market. As a result, suspicion spread rapidly in the stock market that ‘massive investment in AI infrastructure by emerging cloud companies might hit the brakes due to a deadlock in fundraising.’ It was perceived that ‘the major premise of unlimited expansion of AI capital investment,’ which had pushed up semiconductor and data center-related stocks, had cracked, and a landslide of selling flooded into Japanese and U.S. AI semiconductor stocks, manufacturing equipment stocks, and electronic component stocks.
[Resilience of the U.S. market] Strong earnings from financial stocks and healthy sector rotation
In contrast to the Japanese stock market, which was hit by a historic crash, the U.S. market maintained a relatively resilient performance. The NY Dow ended the week with a slight gain.
The biggest factor that supported the downside of U.S. stocks was the earnings announcements of major financial institutions that have started in earnest. With major banks and other financial stocks announcing strong earnings that exceeded market expectations one after another, strong buying entered the financial sector. Although rising geopolitical risks, caution about rising interest rates, and cautious views on AI capital investment stemming from the CoreWeave problem capped the upside of high-tech stocks, a ‘sector rotation’ functioned where institutional investors who withdrew funds from AI-related stocks directed their funds toward undervalued value stocks and cyclical stocks. It succeeded in preventing the entire market from falling into a one-way crash and maintaining a resilient development.
3. Major Market-Moving Factors and Notable Individual Stocks
In this week’s Tokyo stock market, despite a harsh environment where the overall market was shaken by severe volatility, companies that announced excellent unique earnings or shareholder returns, as well as defensive stocks that served as a safe haven from the turmoil in the AI market, staged a powerful counter-trend rally.
① Earnings Upward Revisions and the Fruits of Global Expansion: Furuno Electric, Ryohin Keikaku
Stocks with solid earnings backing showed astonishing strength, unfazed by the deteriorating sentiment of the overall market.
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Furuno Electric: The stock price reached its highest level in about eight months. The announcement of an upward revision for its consolidated net profit for the current fiscal year, reversing the previous forecast of a profit decline to “achieving a record-high profit,” was viewed as a powerful buying factor. It was confirmed that global demand for merchant ship construction is extremely robust, and sales of high-value-added equipment such as marine radars and navigational instruments, in which the company excels, are surging, particularly in overseas markets.
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Ryohin Keikaku: The stock powerfully updated its “all-time high” for the first time since August 12. As a result of the faster-than-expected progress in store expansion and brand penetration worldwide, the company’s consolidated operating profit for the previous fiscal year exceeded “the 100 billion yen mark” for the first time. Furthermore, it was announced that the company expects to achieve record-high profits for the fourth consecutive year in the current fiscal year, with operating revenue projected to “exceed 1 trillion yen” for the first time in history. Its entry into a solid growth stage as a global retail company was highly evaluated.
② Improvement in Capital Efficiency and Strengthening of Shareholder Returns: PR TIMES
Major information distribution service provider PR TIMES surged. The market reacted favorably to the official announcement of an increase in the “Dividend on Equity (DOE)” for ordinary dividends. The company has decided to withdraw from unprofitable businesses with low profitability, clearly indicating a policy to reallocate the freed-up management resources to growth areas while simultaneously significantly increasing direct returns to shareholders. As a company practicing management reform conscious of the cost of capital, its evaluation by institutional investors has risen sharply.
③ Rush of Strong Earnings from IT and Software Stocks: BayCurrent, SHIFT
Towards the end of the week, domestic IT and software service companies released a series of extremely strong earnings reports.
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BayCurrent (BayCurrent Consulting): The announced earnings were significantly better than market expectations, and the stock was bought up to the daily price limit, updating its all-time high. The reality of explosive growth in corporate DX (digital transformation) demand and AI implementation consulting projects was confirmed.
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SHIFT: The company announced earnings growth prospects for the future and powerfully updated its year-to-date high. It continues to maintain high growth by expanding its business scope from software testing outsourcing to overall development support.
Until now, there has been lingering concern in the market that “if generative AI spreads rapidly, existing IT outsourcing and consulting work might be taken away.” However, these strong earnings proved the fact that “service companies that master AI to enhance customer productivity are the ones that can enjoy the most abundant profits in the AI practical application phase.”
④ Shift of Funds to Defensive Stocks: Oriental Land’s 9-Day Winning Streak
Oriental Land, which operates Tokyo Disney Resort, recorded a stunning “9 consecutive trading days of gains” and updated its Oriental Land for the first time in about a month. As AI semiconductor stocks fluctuated wildly and uncertainty in the external environment increased, institutional investors bought back the company, a representative domestic demand/defensive stock, to lower portfolio risk. Furthermore, as an individual factor, the announcement that the name of the new ship for the planned cruise business has been decided as year-to-date high was also greatly boosted by the announcement that the name of the new ship for the planned cruise business has been decided as “Disney Cruise Imagination” which also greatly boosted expectations for the diversification of medium- to long-term revenue sources.
⑤ Winners and Losers by Sector: Rise of Domestic Defensive Stocks and Plunge in Wire Stocks
Looking at the rate of change by industry on the Tokyo Stock Exchange Prime Market, the extreme polarization of the market was highlighted.
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Top gaining sectors: Services, Pharmaceuticals, Other Products. In addition to being led by strong earnings stocks such as BayCurrent, they functioned as a destination for defensive funds to avoid the rough waves of the market.
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Top losing sectors: Non-ferrous Metals, Metal Products, Electric Appliances. These were hit directly by concerns over excessive AI capital investment triggered by the CoreWeave shock. In particular, profit-taking selling was concentrated on wire stocks, which had surged until recently on the back of demand for optical fibers and power grids accompanying data center expansion.
⑥ Notable Stocks: The Three Heavy Industry Giants (Mitsubishi Heavy Industries, Kawasaki Heavy Industries, IHI)
A theme of particular note this week is the three major heavy industry giants: Mitsubishi Heavy Industries, Kawasaki Heavy Industries, and IHI. There are two clear drivers for why these stocks hold strong investment appeal.
The first driver is rising geopolitical risks and defense demand. In addition to the reignited tensions in the Middle East, support for right-wing parties is rapidly expanding across European countries, increasing the risk of global political and geopolitical fragmentation. As the importance of national security is emphasized more than ever, the long-term increases in defense budgets supported by national policy act as a direct tailwind for the major heavy industry companies that form the core of the defense industry.
The second driver is the strong correlation between the US Manufacturing PMI and Japanese machine tool and capital investment. Examining historical data reveals an extremely high correlation between the US Manufacturing PMI and Japanese machine tool orders (year-on-year). Looking at recent trends, both the US Manufacturing PMI and Japanese machine tool orders are showing a clear “bottoming out and improvement trend.” Improvements in business sentiment within the US manufacturing sector and increased corporate appetite for capital investment bring extremely strong expansion in overseas demand for Japanese heavy industry companies, including machine tool manufacturers. It is analyzed that if the October US Manufacturing PMI, to be released on the 23rd, remains strong, market expectations for the growth potential of the global businesses of these heavy industry companies will be revised upward even further.
4. Important events and notable indicators for next week (4th week of October)
Next week will be an extremely dense week, with the announcement of important Chinese macro statistics, the full-scale start of earnings announcements by major Japanese and US companies, and the release of the most important indicators for measuring global business sentiment and domestic inflation realities.
[Main schedule for next week]
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October 19 (Monday): Announcement of China’s Q3 real GDP and release of major Chinese economic indicators (industrial production, retail sales, etc.).
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October 23 (Friday): Announcement of Japan’s September National Consumer Price Index (CPI) and release of October global manufacturing PMI flash estimates for the US, Europe, and Japan.
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Full-scale start of Japanese and US corporate earnings: In the US, earnings announcements from high-tech and major manufacturing companies will follow one after another, and in the domestic market, earnings announcements from major companies such as semiconductor manufacturing equipment giant Disco and FA giant Fanuc will finally begin.
Point of note 1: Full-scale start of major US corporate earnings and S&P 500 profit growth outlook
Starting next week, US corporate earnings announcements will reach their full peak. According to aggregated data from major securities firms, the profit growth rate of S&P 500 companies is on an extremely strong trajectory.
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Q3 2026: An extremely high growth rate of “30% profit increase” year-on-year is expected.
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Q4 2026: “28% profit increase” year-on-year.
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Q1 2027: “19% profit increase” year-on-year.
Although the profit growth rate figures themselves will gradually slow down toward the first half of next year, it is expected that a high level of profit growth of around 20% will continue. Although there is some current volatility due to issues like CoreWeave, the foundation of US corporate performance as a whole is extremely solid.
However, “strict selection of stocks will be essential because the disparity in profit growth between industries will widen significantly in the future”. Specifically, in addition to the “Information Technology (IT)” sector, which is expected to have stable and high profit growth rates from Q4 2026 to Q1 2027, the “Energy” and “Materials” sectors that benefit from commodity market conditions are attracting attention. Furthermore, one cannot overlook the “Healthcare” sector. Healthcare is expected to see its growth rate accelerate rapidly to a “23% profit increase” year-on-year in Q1 2027, and it is predicted to emerge as an attractive sector that combines defensive qualities with high growth potential.
Point of note 2: Japan’s September National CPI (to be announced on October 23) and the Bank of Japan’s interest rate hike stance
The biggest focus in the domestic market is the “September National CPI” to be announced on Friday the 23rd. In the September Tokyo metropolitan area CPI, which was released as a leading indicator, the index excluding fresh food showed a sharp rise of “+2.7%” year-on-year, significantly exceeding the 2% threshold for the first time in eight months. If a spread of inflationary pressure is confirmed in the national CPI to be announced next week, expectations for an additional interest rate hike by the Bank of Japan within the year may be reignited in the bond market, and long-term interest rates may rise.
However, “continued price increases are by no means only a negative factor for the stock market”. If companies can appropriately pass on the rising costs of raw materials and labor to final sales prices and expand sales and profits, this will be returned in the form of higher employee wages and increased personal consumption, forming a “virtuous cycle” for the entire Japanese economy. While caution is needed regarding interest rate shocks caused by rapid rate hikes, a “moderate inflation environment” accompanied by expanding corporate earnings is a powerful long-term support factor for corporate stock prices, which are recorded in nominal terms.
Point of note 3: The start of domestic earnings (Disco and Fanuc)
In the domestic market, Disco, the world leader in semiconductor cutting and grinding equipment, and Fanuc, a global leader in industrial robots, will announce their financial results. In particular, Disco’s earnings will serve as a litmus test that semiconductor investors around the world will watch with bated breath to verify whether demand for advanced semiconductor equipment is truly slowing down, or if actual demand on the ground remains robust, which has been shaken by the recent CoreWeave shock.
5. Medium- to Long-Term Market and Investment Strategy
Finally, I will outline the essential paradigm shift in the AI market and the screening strategy for Japanese stocks ahead of the interim earnings season.
A Historical Turning Point in the AI Market: From ‘Training’ to Daily Use of ‘Inference’
Due to the CoreWeave shock that occurred this week, some in the market have whispered about an ‘AI bubble collapse.’ However, it can be said that if you correctly understand the AI evolution process, the structural expansion of demand is just beginning.
Currently, the global AI industry is undergoing a historic transition from a phase centered on ‘training,’ where large language models are built from scratch, to a phase of ‘inference,’ where completed AI models are widely utilized in real-world society and business is being achieved. According to some research data, the proportion of computing processing in data centers accounted for by AI inference is expected to change drastically as follows.
Furthermore, the adoption of ‘AI-equipped devices’, where AI chips are standard in edge devices such as smartphones and PCs, will begin in earnest. This is a critically important point. While ‘training’ has the aspect of temporary computing demand that occurs intensively during the model development period, ‘inference’ generates massive real-time computing processing every time humans or systems around the world use AI. In other words, as AI permeates daily life and business settings and usage frequency increases, computing demand for data centers will continue to expand stably and constantly.
And the ones who can enjoy the most enormous profit opportunities from this ‘explosive expansion of inference’ are the ‘hyperscalers’ (Microsoft, Amazon, Alphabet, Meta, etc.) that control global-scale cloud infrastructure and large-scale data centers. With the shift from the development stage to the actual usage stage, the superiority of hyperscalers will become even more unshakable. Therefore, the current stock market turmoil is not the end of AI, but rather suggests that it is time to shift the focus of investment to platformers that generate truly sustainable cash flow.
Japanese Stock Interim Earnings Strategy: Selecting Lagging Undervalued Stocks Beyond ‘Priced-in Good Performance’
As we face the interim earnings of Japanese companies that are about to begin in earnest, we must pay close attention to investor expectations and the degree to which they are priced into stock prices.
Currently, TOPIX expected EPS (earnings per share) continues to increase strongly in line with the rise in the ‘Revision Index,’ which shows the spread of upward revisions to earnings forecasts by analysts. While this is gratifying, it also means the reality that the entire market has already anticipated the good performance of Japanese companies at a fairly high level. Therefore, there is a risk that earnings results that are merely ‘achieved profit growth compared to the previous year’ or ‘are proceeding as planned by the company’ will be taken as a case of ‘buy the rumor, sell the news,’ limiting the upside potential of the stock price.
Therefore, a practical approach is selective investment in ‘lagging, undervalued, profit-growing stocks’ that meet all three of the following conditions.
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Solid continuity of performance: Expecting consecutive growth in ordinary profit not only for this fiscal year (FY2026) but also for the next fiscal year (FY2027).
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Low market expectations and a sense of lagging: Market expectations are not excessively high, and the stock price is lagging behind the performance of the TOPIX.
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Undervalued valuation: Being left at an undervalued level in terms of indicators such as PER and PBR.
Instead of chasing popular stocks that have already gathered market frenzy and whose expectations have been raised to the limit, carefully picking up lagging, high-quality companies that are in a strong profit-growth trend but have not been in the market spotlight is the most reliable strategy for winning through the autumn earnings season.
6. Summary
The stock market in the third week of October 2026 was a grueling week shaken by record volatility, including concerns over intensifying memory competition from China, higher-than-expected US CPI, and a 3,318-yen drop in the Nikkei Stock Average due to the CoreWeave shock on Thursday.
However, the market movements seen amidst the storm were not entirely characterized by panic selling. The ‘genuine earning power that the world can be proud of’ demonstrated by Furuno Electric and Ryohin Keikaku, the ‘high growth of software companies that have embraced AI’ shown by BayCurrent and SHIFT, and the strength of the heavy industry sector, which is benefiting from the tailwinds of geopolitics and manufacturing recovery, are evidence that the market is accumulating new upward energy.
The AI market has now finished the initial phase of building massive infrastructure for ‘development and learning’ and is entering its second chapter, where people around the world will harvest the true fruits of ‘inference and practical application’ by using AI in their daily lives. As we calmly assess the major corporate earnings starting in earnest next week, including those from Disco and Fanuc, as well as the figures for U.S. corporate earnings which are expected to show a 30% increase, we must not be swayed by excessive noise. Instead, patiently allocating capital to excellent companies that possess both robust fundamentals and undervaluation should serve as a reliable compass for navigating this turbulent market and securing fruitful returns.
