Supply-Demand is Expected to Tighten Soon
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UBS initiated coverage on Sakura Internet with a Buy rating and a target price of ¥4,930. The company's core GPU cloud services business has seen depressed valuations due to significant domestic demand outflows—exceeding 80%—and pricing concerns. GPU chip utilization dropped to 15-45% in the second quarter of FY3/26, pushing the firm to sell at discounted rates.
However, UBS expects domestic GPU usage demand to expand rapidly at a 3.4x CAGR through FY3/30, with a meaningful portion of demand from government and academic institutions remaining within Japan. Sakura Internet's available computing power is projected to grow from approximately 5.2 EFLOPS in FY3/26 to 7.7 EFLOPS in FY3/27. Yet, the growth rate of domestic residual demand is expected to outpace capacity expansion.
Consequently, UBS forecasts that demand will exceed supply by the second half of FY3/27, improving profitability and reducing discounting pressures. The target price is based on an FY3/28 EV/EBITDA multiple of 4x, representing a discount to the industry average of 6x. Free cash flow is projected to turn positive in FY3/29, presenting an early-stage opportunity with a wide range of potential outcomes.