The Nikkei Stock Average has risen 50% over the past year, creating an impression of strength, while the reality is an increasingly K-shaped divergence, with the upside concentrated in large companies involved in areas such as AI infrastructure and semiconductors. Share prices are said to reflect intrinsic value, based on the present value of future cash flows.
The Nikkei Stock Average has risen 50% over the past year, creating an overall impression of strength in the Japanese economy. In reality, however, the K-shaped divergence is widening, with the upside concentrated in a handful of large companies involved in areas such as artificial intelligence infrastructure and semiconductors, while many companies are experiencing sluggish earnings. This has created differences in market outlooks.
Share valuation is explained in terms of intrinsic value, calculated by aggregating the present value of future cash flows (CF). Share-price valuation in the context of a corporate acquisition is also said to begin with estimating intrinsic value, leading to the view that, unless a company can generate sufficient CF, it is difficult to say that high share-price levels have a realistic basis.