Chapter 1: How is Toto becoming an unexpected player in the AI market?
Welcome to the podcast. I'm your host, Jaden Schafer. Today on the show, I want to talk about, I think, a really interesting story that basically nobody is covering. And that is how there's a toilet company, Toto, out of Japan. And it is quietly becoming one of the most undervalued and overlooked AI memory companies or beneficiaries out there. This is really interesting.
We see AI basically coming into every industry. And manufacturing for AI and AI parts, we need a lot of help on that front.
Chapter 2: What role does Toto play in semiconductor manufacturing?
And some of it is coming from the most unlikely of sources like this Japanese toilet company. So I want to I want to break down the story and show you what's going on with Toto, why their stock has rallied 40% on some of this news.
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Chapter 3: How are investors reacting to Toto's AI-related growth?
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This is, you know, Toto is famously a company.
Chapter 4: What is the significance of Toto's advanced ceramic division?
They have like these toilets with like heated seats and this like the sprayer that sprays you and washes you and dries you. And like, you know, there's like all this crazy. Everyone's heard the legendary fables of Japanese toilets. And Toto also is a brand that. is in America. You've seen it in lots of airports as well, as far as just a toilet company.
Now, in order to make these toilets, they obviously have to do a lot of work in manufacturing in ceramic. And there's a new report that just came out of the Financial Times that says a UK activist investor Pallister Capital, has taken a stake in this company. They sent a letter to the board and they argued that Toto's advanced ceramic division is dramatically undervalued.
They said that the company, which of course is just known for toilets, sitting in the middle, is basically right now sitting in the middle of AI infrastructure and semiconductors supply chain story, and that it should be playing a bigger role. Pallister goes so far as to call Toto, quote, the most undervalued and overlooked AI memory beneficiary. I think that is definitely... activist framing.
This is not kind of a neutral analysis, but it's rooted in something really real, right? There is a surge in AI spending right now, and it has tightened memory markets, and it's really intensified demand for semiconductor manufacturing tools. And Toto is, I guess, apparently in this whole ecosystem. So for decades, Toto has been producing AI
highly specialized ceramic components, which are used in chip fabrication. These aren't, you know, in bathrooms, of course, but they're precision engineered parts and they hold silicone wafers in place during delicate processes like etching and deposition. And so they have to be able to go up to really extreme heats
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Chapter 5: How is AI changing supply chains in various industries?
they have to do a lot of thermal stress and they have to also prevent contamination they're also supposed to maintain like exact tolerances and total's lineup includes um you know like air bearings they do bonding capillaries and a lot of other things i think there's some structural components for high precision semi-conductor equipment that they work on and right now investors are starting to actually realize this of course we have this activist investor that's going off on it but i think this isn't just like a side project for toto there's some recent reporting that suggests that advanced ceramic business
for Toto accounts for about 40% of their operating profit. And I think even as the brand, right, if this is known globally with toilets, that's what everyone would associate Toto with. But their AI data centers are starting to, like the AI data centers that they're supplying are starting to have a massive outsized demand for memory.
There's a tightening supply chain, which is pushing up wafer fab utilization. And I think because of that dynamic, this is feeding directly into demand for the equipment. and components that are required to manufacture those chips. So Toto's been already like working on this. They've already been kind of making those chips. It was sort of a side thing.
And all of a sudden, this is becoming a major part of their business.
Chapter 6: What are the risks and opportunities for Toto in the AI space?
I mean, 40% of their operating profit, and nobody's talking about it until, of course, this activist investor takes a big stake, starts, you know, very vocally discussing this. And now, of course, their stock price has been going up. So Pallister is basically urging management of the company Like, look, guys, you have to communicate the value of this segment better.
Chapter 7: What does the future hold for Toto as a semiconductor supplier?
You need to sharpen capital allocation. And you have to deploy your approximately, they have about 76 billion in net cash. And that's in Japanese won, of course. But he's saying, look, you guys have to deploy this more aggressively, potentially expand the ceramics capability ahead of rivals. And I think there's a bunch of different analysts at firms. Goldman Sachs is one of them.
And they've highlighted that earnings leverage tied to those specific components, in part, you know, on expectations of a NAND recovery. You know, this is super critical. And the market obviously has responded. Toto shares are up about 40% year to date. I think this is a lot of this is rising because of the analyst upgrades and, of course, the activist pressure.
Investors, I think, are not just trying to chase, you know, kind of like a novelty AI narrative, which is attached to a toilet brand. I think this is probably what a lot of people would accuse them of or would say, like, look, you guys are just trying to like
you found one little in in the ai industry and because it's booming you're a toilet company you're trying to just kind of bump your stock up it reminds me of you know during a lot of the crypto days there's like a lemonade company that just changed its name to blockchain lemon or something like that so that it could uh you know then there's i don't i have no idea why they just literally just put the name blockchain in their company name and all of a sudden their stock bumped up it was about to get delisted for lack of like trading shares and stuff and
That saved them for a couple months. And then I think eventually they got pulled off of the stock market for lack of volume or something like that. But anyways, it doesn't feel like a desperate ploy like that. I mean, this is 40% of their operating revenue. And this is a, you know, they have a massive opportunity here. So I think there's legitimately an opportunity. Toto may turn into an AI...
ceramics supplier for these wafers and all of that. I think there's some people that are trying to be cautious with this, specifically because when Pallister, the kind of activist in all of this, he's putting a pitch in for the company and he was saying like, look, you guys have a, this is like his quote was that there was a durable five-year technological moat. Some are saying this isn't quite
Now, what I will say is that electrostatic chucks and also a lot of the other kind of related ceramic parts, those are super essential for advanced etch processes.
And so I think whether that translates into kind of this growth, this like sustained growth and this kind of breakout is going to depend a lot on the fab expansion plans. Major memory manufacturers have been really careful about committing to large capacity increases. They're kind of worried about oversupply if there was a bubble or if things shifted, if AI demand cools.
One thing I will say, though, is that Toto moving from kind of being this famous toilet brand to perhaps a semiconductor material supplier. is just showing how much in kind of the overall industry, how much of a shift we're seeing and how AI is definitely changing supply chains. I think the people that are winning is not just NVIDIA or AMD.
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