Will Kioxia's stock price continue to fall due to margin pressure?

According to Golden Ten Data APP, Japanese memory chip manufacturer Kioxia is facing further downward pressure on its stock price. Previously, many investors borrowed funds and leveraged to buy the stock, betting on a price increase, but now these positions are piling up, and some investors may be forced to sell at a loss.

Largest leveraged buying scale, trading volume shrinks 84% from peak

According to Tokyo Stock Exchange data, as of October 15, Kioxia's outstanding leveraged long positions totaled about 920 billion yen (approximately $5.8 billion), making it the largest among all listed companies on the Tokyo Stock Exchange.

Meanwhile, as the stock price declined, Kioxia's trading activity also decreased. The turnover shrank 84% from its peak, dropping to 766 billion yen last Friday. This has put some margin traders at risk of being forced to close positions at prices below their purchase price.

Matsui Securities' Chief Market Analyst Tomoichiro Kubota said: “The issue is that leveraged buying has become excessively inflated.” He noted that if retail investors are forced to sell as the margin positions approach expiry, the stock price could fall further.

Leveraged buying remains high, potential selling pressure ahead

AI stocks pull back, margin position expiry pressure rises

In recent months, AI-related stocks have suffered continuous setbacks due to market concerns that capital expenditure plans may outpace the industry's future growth rate. Kioxia is one of the hardest-hit stocks, with its price down 63% from the record high set in June.

Tokai Tokyo Research Laboratory analyst Shota Sando estimates that margin balances will remain elevated at least until around the end of December. By then, investors who bought near the stock's peak will face position expiry.

Kioxia manufactures NAND flash memory used in AI servers and is one of Japan's largest market-cap stocks. Tokyo Stock Exchange operator Japan Exchange Group has announced that starting this month, Kioxia’s weight in the TOPIX index will be increased. This means Kioxia's influence on the broader market will further rise.

Short-term capital retreats, earnings and valuation still provide support

Phillipcapital Japan’s head of equity trading Takehiko Masuzawa said that short-term investors who previously bought on stock price gains no longer have the same buying motivation. The participation of hedge funds and day traders has declined, leading to a drop in trading volume.

However, the company’s earnings outlook remains strong. With NAND prices rising, the market expects Kioxia’s net profit for the current fiscal year to reach about 5.6 trillion yen, roughly 10 times last year’s figure. Last Friday, its 12-month forward price-to-earnings ratio was 3.2 times, close to the lowest level since January 2025, and below US peer SanDisk's 6.2 times.

Additionally, the market predicts that the increased weight of Kioxia in the TOPIX index may bring 2 trillion yen of passive capital inflows.

However, there is currently little sign that trading enthusiasm will return to previous levels. Stock price volatility has decreased, further lowering its attractiveness to short-term investors. Even though Kioxia implemented a “one-to-three” stock split in October—a move that typically helps boost liquidity—its trading volume showed almost no significant change.

On Monday, at the time of reporting, Kioxia was down over 3%, and the Nikkei 225 Index dropped 2%.