When investors talk about the AI boom, the conversation usually circles around chip designers, cloud giants and data centre operators. Rarely does a bathroom brand enter the picture. Yet that is exactly what is happening with Toto, the Japanese company best known for its Washlet toilets. Synonymous with heated seats and bidets, Toto is now drawing serious attention from global investors as an unexpected beneficiary of the AI and semiconductor supply chain.
The renewed interest follows a push by UK-based activist investor Palliser Capital, which recently emerged on Toto’s shareholder register. The Financial Times reported that Palliser has described the company as “the most undervalued and overlooked AI memory beneficiary”, a claim for a firm rooted in bathroom fittings. The argument, however, is not about software, algorithms or chip design. It is about materials, precision and a ceramics business that has quietly become central to advanced chip manufacturing.
From bathroom fittings to AI chip factories
Toto is not building AI models or fabricating chips. Instead, it supplies highly specialised ceramic components that sit deep inside semiconductor manufacturing equipment. These advanced ceramics are used in tools that handle silicon wafers during processes such as etching and deposition, where accuracy is measured in microns and any contamination can wipe out entire production runs. Toto’s portfolio includes air bearings, bonding capillaries and electrostatic chucks, components that help hold wafers steady under extreme conditions of heat and pressure.
This side of the business may be invisible to consumers, but it is far from small. Recent disclosures suggest that advanced ceramics already account for roughly 40 per cent of Toto’s operating profit. As demand for AI accelerates, driven by data centres and memory-intensive workloads, the need for high-performance NAND and DRAM chips is rising. That, in turn, is lifting demand for the equipment and materials required to manufacture them. Toto’s ceramics sit squarely in that critical layer of the supply chain.
Why investors suddenly care about ceramics
The timing also matters. Global semiconductor supply chains are under strain, with tighter controls on rare materials and renewed geopolitical scrutiny. Manufacturers are increasingly valuing suppliers with proven reliability and deep materials expertise. Toto, which has spent decades refining precision ceramics for industrial use, is now being viewed 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 deploy its roughly Yen 76 billion, or about $496 million, in net cash more aggressively. The investor believes the company can scale its ceramics operations faster than rivals and secure an early lead as chipmakers ramp up capacity to meet AI-driven demand. The campaign has added momentum to a stock that is already moving.
Additionally, Goldman Sachs Group and other research firms have agreed to Toto’s strong positioning as memory markets recover after a prolonged downturn in 2022-23. The company’s shares are up nearly 40 per cent so far this year, showing optimism that its materials business will ride the next semiconductor hype-cycle.
AI optimism meets semiconductor reality
People are excited about Toto because of AI, but that excitement may not last. Some of the claims being made by Palliser about Toto having a long-term edge in advanced ceramics for chipmaking are yet to be tested. The chip industry moves in cycles, and memory makers remain cautious after earlier periods of oversupply.
A November 2023 analysis showed that DRAM and NAND prices fell through 2022 and early 2023 before beginning to stabilise later in the year. If AI-related spending slows, companies may cut back on chipmaking equipment, which would directly affect demand for Toto’s ceramics.
