(C) Seeking Alpha

TOKYO – FANUC, the world’s leading industrial robotics and factory automation (FA) company, has emerged as a premier blue-chip stock in the Japanese market. The company’s share price has soared nearly 60% over the past six months, fueled by a recovery in the manufacturing cycle and a landmark partnership with NVIDIA to develop "Physical AI."

The "Hermit King" Joins the AI Revolution
For decades, FANUC was known as the "Hermit King" of the tech world. Headquartered at the foot of Mount Fuji in Oshino-mura, the company maintained a policy of extreme secrecy and isolation, rarely engaging with analysts or the media. However, on December 1, FANUC broke its long-standing silence by announcing a strategic collaboration with NVIDIA.

The partnership aims to integrate NVIDIA’s advanced AI computing semiconductors with FANUC’s industrial robots. The goal is to develop next-generation intelligent robots capable of understanding human language and navigating the physical world through simulation-based learning. By leveraging NVIDIA’s "Omniverse" platform, FANUC plans to implement "Physical AI," allowing robots to master complex tasks in a virtual environment before applying them to real-world factory floors.

Strategic Shift Amid Fierce Competition
Industry analysts view this move as a response to intensifying competition in the robotics sector. SoftBank Group recently intensified the rivalry by acquiring the robotics business of ABB—FANUC’s primary competitor—for $5.47 billion. SoftBank CEO Masayoshi Son has pledged to merge "Artificial Super Intelligence" (ASI) with robotics, forcing FANUC to accelerate its own digital transformation.

In an unprecedented move toward transparency, FANUC also released driver software on GitHub, allowing developers to control its robots via open-source platforms. This strategy aims to ensure that FANUC remains the industry standard as the market transitions toward AI-integrated manufacturing.

Robust Earnings and Macro Winds
Beyond the AI hype, FANUC’s fundamentals remain rock-solid. For the first half of fiscal year 2025, the company reported an operating profit of 86 billion yen, a 13.7% increase year-on-year. Despite global economic uncertainty, the demand for automation in China and the Americas has driven operating margins up to 21.1%.

The "Trump 2.0" era is also being viewed as a potential tailwind. As nations seek to reshore supply chains and build domestic manufacturing hubs, the demand for FANUC’s high-end CNC machines and robots—essential for producing everything from iPhones to Tesla EVs—is expected to grow by 10% annually through 2027.

Valuation Debate: AI Leader or Traditional Manufacturer?
The rapid price appreciation has sparked a debate over FANUC's valuation. Trading at a Price-to-Earnings (PER) ratio of approximately 34.9x, some analysts argue the stock is becoming overextended. Goldman Sachs maintains a "Sell" rating, while Deutsche Bank remains cautious, citing limited catalysts for further growth in the short term.

Conversely, JP Morgan has raised its target price to 7,000 yen, arguing that FANUC should be re-rated as a core AI infrastructure play rather than a cyclical machinery firm. "Even conservative estimates show that AI integration could boost annual net income by 60 billion yen by maximizing factory utilization rates," noted Tatsuya Maruyama, an analyst at JP Morgan.

As the boundary between hardware and software blurs, FANUC’s evolution from a secretive manufacturer to an AI-driven robotics pioneer will likely remain a focal point for global investors in 2026.