Toilet accessory manufacturer Toto is suddenly one of the hottest companies in the AI chip industry
Known globally for its Washlet toilets, Japan’s Toto is attracting investor attention as a quiet beneficiary of the AI boom. Its advanced ceramics, used in chip manufacturing equipment, are now seen as a vital link in the semiconductor supply chain.
When investors talk about the AI boom, the conversation usually revolves around chip designers, cloud giants and data center operators. Hardly any bathroom brand comes into the picture. Yet that’s exactly what’s happening with Toto, the Japanese company best known for its washlet toilets. Synonymous with heated seats and bidets, Toto is now attracting the attention of global investors as an unexpected beneficiary of AI and the semiconductor supply chain.
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The renewed interest comes following encouragement from UK-based activist investor Palliser Capital, which recently emerged on Toto’s shareholder register. The Financial Times reported that Palliser described the company as “the most undervalued and neglected AI memory beneficiary”, a claim the firm has roots in bathroom fittings. However, this argument is not about software, algorithms, or chip design. It’s about the materials, precision and ceramics business that has quietly become the center of advanced chip manufacturing.
From bathroom fittings to AI chip factories
Toto is not building AI models or making chips. Instead, it supplies highly specialized ceramic components that sit deep inside semiconductor manufacturing equipment. These advanced ceramics are used in equipment that handles silicon wafers during processes such as etching and deposition, where accuracy is measured in microns and any contamination can wipe out an entire production run. Toto’s portfolio includes air bearings, bonding capillaries and electrostatic chucks, components that help keep wafers stable under extreme conditions of heat and pressure.
This side of the business may be invisible to consumers, but it is not small. Recent disclosures show that advanced ceramics already account for about 40 percent of Toto’s operating profits. As the demand for AI grows due to data centers and memory-intensive workloads, the need for high-performance NAND and DRAM chips is increasing. In turn, the demand for equipment and materials required for their construction is increasing. Toto’s ceramics sit perfectly in that critical layer of the supply chain.
Why do investors suddenly care about ceramics?
Time also matters. Global semiconductor supply chains are under strain due to tighter controls on scarce materials and renewed geopolitical scrutiny. Manufacturers are increasingly valuing suppliers with proven reliability and deep material expertise. Toto, which has spent decades refining precision ceramics for industrial use, is now seen as a strategic enabler rather than a peripheral supplier.
Palliser Capital has urged Toto’s management to be more vocal about this hidden strength and to more aggressively deploy its approximately 76 billion yen, or about $496 million, of net cash. The investor believes the company can scale up its ceramic operations faster than rivals and gain an early lead as chipmakers ramp up capacity to meet AI-driven demand. The campaign has added momentum to a stock that was already rising.
Additionally, Goldman Sachs Group and other research firms have agreed on Toto’s strong position as the memory market recovers after a long recession in 2022-23. The company’s shares have risen nearly 40 percent so far this year, showing optimism that its materials business will carry on into the next semiconductor hype-cycle.
AI optimism meets semiconductor reality
People are excited about Toto because of AI, but that enthusiasm will not be sustainable. Some of the claims being made by Palliser about Toto’s long-term lead in advanced ceramics for chip manufacturing have not yet been tested. The chip industry moves in cycles, and memory makers remain cautious after earlier periods of oversupply.
Analysis for November 2023 showed that DRAM and NAND prices fell in 2022 and early 2023 before stabilizing at the end of the year. If AI-related spending slows, companies may cut back on chip-making equipment, which will directly impact demand for Toto’s ceramics.
