Stock price could rise another 55%! UK hedge fund bets: Global largest toilet maker TOTO will be a hidden winner of AI chips

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UK activist investor Palliser Capital views Japanese bathroom giant TOTO as an “undervalued and overlooked” AI investment opportunity. The manufacturer, famous for its smart toilets, is taking a key position in the semiconductor supply chain thanks to its advanced ceramics business.

Palliser Capital sent a letter to TOTO’s board last week, urging it to strengthen investment in the advanced ceramics segment. This segment produces electrostatic chuck equipment used for manufacturing NAND memory chips, and currently contributes about 40% of TOTO’s operating profit. With AI companies’ surging demand for memory chips, this business is becoming a new engine for the company’s growth.

Palliser Capital believes that if TOTO expands its advanced ceramics business and optimizes capital allocation, its stock price could rise by more than 55%.

According to Bloomberg, after news of Palliser’s shareholding emerged, TOTO’s share price surged more than 5% on Tuesday. Over the past year, the stock has risen more than 60% cumulatively.

Last month, Goldman Sachs upgraded TOTO’s rating to “buy,” citing optimism about sustained high growth driven by global AI data center investment expansion. This shows the market is re-evaluating the value of this traditional manufacturer in the semiconductor industry chain.

From Bathroom Champion to Key Semiconductor Supplier

TOTO is internationally known in Japan for its heated toilet seats and “Washlet” bidet functions, but Palliser points out the company “has quietly transformed from a traditional domestic bathroom champion to an emerging leader in advanced ceramics for semiconductor manufacturing.”

The company’s electrostatic chuck technology uses ceramics that remain stable at extremely low temperatures to firmly hold silicon wafers in chip manufacturing. This links closely to low-temperature etching processes— as memory chips become increasingly layered and complex, the importance of this technology will continue to grow.

TOTO has been producing electrostatic chucks using ceramic technology accumulated from toilet manufacturing since the 1980s, but this business has only begun to scale significantly in recent years. In recent months, driven by huge AI-related company demand, memory chip prices have risen dramatically, further boosting the market position of relevant equipment suppliers.

Five-Year Technology Moat and Growth Prospects

Palliser believes TOTO holds a five-year competitive moat in the advanced ceramics sector, making it hard for other companies to catch up in the short term. The fund expects, driven by the NAND upgrade cycle and steady replacement demand, that this business could see revenue growth of 30% or more over the next two years.

The fund describes TOTO as “the most undervalued and overlooked beneficiary of AI memory.” However, Palliser also points out TOTO has failed to sufficiently explain the importance of this business to shareholders and the market, and that the proportion of capital allocated by the company’s plans to this high-profit segment is too low.

Palliser was founded by a former senior figure at Elliott Management, and has played an increasingly important role in the wave of shareholder activism in Japan in recent years. Other fund holdings include Tokyu Fudosan, Keisei Electric Railway, and Japan Post Holdings.

Reform Proposals and Capital Allocation Optimization

Palliser proposes TOTO expand its advanced ceramics business, sell cross-shareholdings, and use its ¥76 billion (US$496 million) net cash more efficiently. The fund estimates that if these measures are implemented, TOTO’s stock price could rise more than 55%.

Cross-shareholding is a long-standing governance issue among Japanese companies. In recent years, amid Tokyo Stock Exchange-driven corporate governance reforms, more and more companies have begun to reduce such holdings to improve capital efficiency.

TOTO is not the first non-tech Japanese company to benefit from the AI boom. Ajinomoto is famous for its soup products, but the company uses its expertise in umami seasoning to produce resins that form insulating materials between chips and motherboards, similarly riding the semiconductor industry’s expansion.

Analysts had already noticed the potential of TOTO’s advanced ceramics business. When Goldman Sachs upgraded the stock to “buy” last month, it emphasized that expanding global AI data center investment would support sustained high growth in this segment.

These cases show that within Japan’s manufacturing system, many traditional companies, relying on decades of accumulated materials and process technology, are unexpectedly participating in the global semiconductor supply chain and becoming invisible supporters of AI infrastructure construction.

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