While global capital remains locked in fierce debate over whether Nvidia can beat expectations again next quarter, a cohort of sharp-nosed fund managers has quietly pivoted toward more obscure targets. Japan’s century-old sanitary ware company TOTO has become a key allocation focus for multiple institutions over the past year. Its stock price surged as much as approximately 120% at its 2026 peak. Even after the recent violent deleveraging in the AI sector, its year-to-date gain still exceeds 40%, massively outperforming the Nikkei 225’s roughly 15% rise over the same period.
What propelled this “toilet company’s” stock price surge is not its shrinking sanitary ware mainstay, but a long-ignored advanced ceramics business that accounts for just 11% of total revenue. This segment saw sales explode 134% over the past year, single-handedly contributing 61% of the entire group’s operating profit, with a profit margin of 30%—more than triple that of the sanitary ware business. On August 5, following TOTO’s latest earnings release, Goldman Sachs issued a “Conviction Buy” rating with a 12-month target price of ¥11,100 (approximately $69.64), implying over 76% upside from the then-share price of ¥6,295 (approximately $39.49).
An Unexpected Gift from a Century-Old Kiln
TOTO’s founder started by firing sanitary ceramics a hundred years ago. Today, that same precision ceramic sintering process has unexpectedly become a critical linchpin for global AI infrastructure.
During the etching process in chip manufacturing, wafers must be firmly secured without any mechanical clamps touching the surface. High-purity ceramic electrostatic chucks use electrostatic attraction to hold wafers uniformly in place, achieving precision down to one-eightieth the width of a human hair. They must simultaneously meet four stringent requirements: resistance to plasma erosion, precise temperature control (uniformity within ±1°C), precisely controllable insulation properties, and ultra-long service life. In extreme chamber environments, metals corrode and polymers decompose—only high-purity alumina ceramics can perform. Globally, only a handful of companies can achieve mass production, and TOTO is one of them.
The complete supply chain logic is as follows: component suppliers like TOTO supply semiconductor equipment manufacturers such as Applied Materials (AMAT), Lam Research, and Tokyo Electron (TEL). Equipment ships from the factory with TOTO’s electrostatic chucks built in, and complete units are delivered to wafer fabs like Samsung, SK Hynix, and Micron for wafer etching. Electrostatic chucks are continuously consumed during use and must be replenished by TOTO—a classic consumables repeat-purchase business. With demand for memory chips exploding, electrostatic chuck orders are now booked through 2027.
China is a major customer for TOTO’s electrostatic chucks. Wafer fabs including SMIC (0981.HK), CXMT, YMTC, and Hua Hong (1347.HK) extensively use etching equipment from AMAT, Lam, and Tokyo Electron, all with built-in TOTO chucks. Chucks enter China via two paths: embedded in complete equipment units, and through regular consumable replacement purchases by wafer fabs. With China’s semiconductor industry aggressively expanding capacity in recent years and robust demand for mature-node processes, the Chinese market now contributes a significant proportion of TOTO’s advanced ceramics revenue.
Main Business Struggles, Side Business Explodes
TOTO’s toilet mainstay faces real headwinds. Japan’s new housing starts have shrunk continuously from 1.2 million units in 2000 to approximately 800,000 units in 2025, with an aging population and demographic decline essentially eliminating the incremental market. Its mainland China business is an even bigger drag—at its peak, over 700 stores were deeply tied to property developer channels, and subsequent project orders have fallen off a cliff. The Americas recorded a slight loss in the first quarter, while Europe barely broke even.
In stark contrast, the advanced ceramics business is on a tear. Goldman Sachs’ report noted that first-quarter electrostatic chuck sales growth was only 6%, far below the full-year guidance of +26%, due to dual supply chain bottlenecks occurring simultaneously: first, upstream component shortages at equipment manufacturers delayed complete unit deliveries, causing TOTO chucks to back up; second, TOTO itself could not procure enough raw materials, preventing timely fulfillment of replacement demand. However, management confirmed both issues are being resolved, with expectations to recognize both delayed Q1 shipments and normal Q2 shipments together in the second quarter, keeping full-year guidance unchanged.
Fund Managers’ New Hunting Ground
Wen Yandao, Head of Neuberger Berman’s Asia Thematic Equity Investments, told Tencent Finance that this AI wave has not only boosted chip stocks but also thrust some traditional Japanese companies seemingly unrelated to tech into the market spotlight. TOTO leveraged its toilet ceramic technology to break into electrostatic chucks, while Ajinomoto leveraged a byproduct of MSG fermentation to enter ABF insulating films—both saw their stock prices nearly double this year, earning the label “AI dark horses.”
“Asia’s markets harbor many similar opportunities that require bottom-up research to uncover, and this is key to generating excess returns going forward,” Wen said. While consensus AI beneficiaries like semiconductors still hold allocation value, capturing more alpha will inevitably require digging up more of these “toilet companies” or “MSG companies.”
China’s A-Share Hidden Champions
TOTO is merely a microcosm of the AI super-cycle—traditional main businesses operating for decades or even a century, with an obscure side business suddenly re-rated due to the AI explosion, spotted by foreign capital before the broader market. With many hot AI stocks trading at elevated valuations, fund managers are all searching for the next TOTO. China’s A-share market has no shortage of such targets, some already quietly accumulated by QFII.
Hongfa Technology (600885.SS) is the most typical case. Its main business is relays—industrial basic components it has made for decades. After AI data centers exploded, server power management, UPS systems, and cabinet power distribution all require large quantities of high-spec relays. Hongfa, with the world’s largest relay market share (approximately 25%), benefits directly. QFII holdings tell the clearest story: only one QFII held 20.3 million shares in the Q1 report, but by Q2, four QFIIs collectively held 62.1 million shares—tripling in a single quarter, making this the most prominent case of foreign capital “concentrating positions” in this rotation.
Yaxiang Integrated (603929.SS) is an engineering company whose main business is building cleanrooms for wafer fabs. The explosion in AI chip demand has triggered frenzied capacity expansion by TSMC, SMIC, and CXMT. Every new production line requires Yaxiang’s cleanroom engineering services—a classic “picks-and-shovels” logic. Its QFII holding market value ranks third, behind only CATL and Hongfa Technology.
CSSC Special Gas (688146.SS) specializes in specialty gases like fluorine, chlorine, and high-purity hydrogen—indispensable consumables for semiconductor etching and deposition processes. The logic is highly similar to TOTO’s electrostatic chucks: unremarkable industrial products that, once essential to manufacturing, command enormous pricing power. JPMorgan is the primary holder with a position of 445 million yuan (approximately $66.0 million), and Q2 net profit grew 95.63% year-on-year.
Xiandao Ji Electric (600641.SS) primarily makes power electronic devices and variable frequency equipment, and has recently entered the data center high-voltage direct current (HVDC) power supply system space. As computing centers’ electricity consumption soars, demand for high-efficiency power conversion equipment explodes in tandem. Traditional electrical equipment valuations are now enjoying an AI infrastructure premium re-rating, with QFII holdings ranking fifth.
Structural Opportunities in Global AI Trade
Behind the TOTO phenomenon lies a profound restructuring of the global AI supply chain trade landscape. According to WTO data, AI-related goods contributed nearly half of global trade growth in 2025, demonstrating dominant prominence. Global AI supply chain goods trade exceeds $4 trillion, accounting for over 15% of global merchandise trade. Intermediate goods, specialized equipment, and raw materials account for 75%, 23%, and 2% of trade respectively, with intermediate goods being the absolute mainstay.
A trade pattern has emerged with East Asia as the primary supplier and China and the US as the primary demand sources. On the export side, mainland China, Taiwan, and South Korea together account for nearly 70% of global exports. Imports are dominated by China and the US, with mainland China and Hong Kong together accounting for approximately 40% of global AI-related product imports, predominantly intermediate goods; the US accounts for nearly 20% of imports, with balanced demand for both intermediate goods and specialized equipment.
Notably, major importing and exporting countries overlap significantly, reflecting that the AI supply chain is not a unidirectional trade relationship but a complex network built on transnational collaboration. Future competition in AI is essentially competition for dominance over key technologies, core production capacity, and industrial ecosystems within the global division of labor.
According to analysis by the China Minsheng Bank Research Institute, from January to April 2026, China’s AI supply chain goods imports and exports totaled $581.6 billion, up 39.4% year-on-year, accounting for 25% of total goods trade over the same period. AI goods imports and exports contributed 45.8% of goods trade growth during this period, serving as the core driver of foreign trade expansion this year. China has developed strong competitiveness in areas such as PCBs, servers, and optical communication equipment, but remains highly dependent on imports for core segments including high-end chips and semiconductor manufacturing equipment.
Finding the Next TOTO
These cases share a common logical thread with TOTO: not an active “pivot to AI,” but existing manufacturing capabilities or technical accumulations that happen to become irreplaceable hidden consumables for AI infrastructure. Foreign capital spotted this and quietly built positions, while the market’s full pricing often arrives late.
As AI accelerates from model research and development toward large-scale application, data center construction is entering a new expansion cycle. According to US consultancy JLL, global data center capacity is expected to grow from 103GW in 2025 to 200GW by 2030, a compound annual growth rate of approximately 14%. Data center construction and operation span multiple supply chains including energy, infrastructure, computing power, and communications, with the range of benefiting industries set to expand significantly.
From a longer-term perspective, as advanced chip supply gradually expands, the primary constraint on AI industry development may shift from “chip shortage” to “power shortage.” The International Energy Agency expects global data center electricity demand to double by 2030 from current levels, and power and grid construction cycles take longer than chip capacity expansion. This means the next batch of “TOTOs” may be hidden in broader fields such as power equipment, new energy equipment, and energy metals.
Going forward, “finding the next TOTO” will remain both an opportunity and a challenge for fund managers. As Wen Yandao noted, capturing more excess returns will inevitably require uncovering more of these hidden champions that appear unrelated to technology but are deeply embedded in AI infrastructure.