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Toyota-backed PKSHA's IPO pop raises hopes for Japan AI

A strong performance by the startup could help other promising ventures raise funds

CEO Katsuya Uenoyama sees PKSHA Technology's strong stock market debut as a sign of the "high expectations" riding on the company.

TOKYO -- The blockbuster stock market debut of PKSHA Technology here Friday raises the hope that it may spark a much-needed rush of investment into Japanese startups specializing in artificial intelligence technology.

PKSHA -- whose early investors include Toyota Motor and wireless carrier NTT Docomo -- develops algorithms for text analysis, speech processing, image recognition and other functions. These tools are bundled together according to client's needs and provided mainly as cloud applications.

Pronounced "pahk-sha," the company opened on the Tokyo Stock Exchange's Mothers market at 5,480 yen -- more than double the initial offer price of 2,400 yen. Its market capitalization at the end of the day stood at 74.6 billion yen ($665 million), placing it sixth on the tech-heavy board, behind social networking firm Mixi and robotics outfit Cyberdyne

"I believe this exemplifies the high expectations" investors have for PKSHA, said CEO Katsuya Uenoyama.

The company expects to earn a group net profit of 230 million yen for the year ending Sept. 30, which gives it a forward price-earnings ratio well over 300. Baked into this rich multiple is anticipation of major profit growth next fiscal year and beyond, said Katsumi Udagawa at Ichiyoshi Securities.

Mix and match

Many AI programs are custom developed for a specific to a company or an industry. But by combining algorithms from seven areas, PKSHA can create solutions for a wide range of customers in a short time.

PKSHA "can quickly provide AI that matches a corporation's needs, and their activities could go global," said Takaki Demichi at Sparx Asset Management.

PKSHA already counts major corporations among its clients. On the investor side, Toyota acquired a 1 billion yen stake in the AI development partner after discovering PKSHA's technical prowess in natural-language processing and image recognition. The two companies will reportedly deepen their collaboration on developing driverless car technology and connected vehicles.

"We want AI to penetrate every corner of society," said Uenoyama. 

AI startups are coming to the fore in Japan amid an expanding market. This month, Tokyo-based Preferred Networks introduced one of the country's most powerful private-sector supercomputers. The company has raised more than 10 billion yen from Toyota and collaborates with telecom NTT and industrial robot maker Fanuc.

Abeja, another Tokyo AI startup with a focus on solutions for retail, has won funding from the likes of U.S. chip designer Nvidia.

But these newcomers face stiff competition in the international arena -- not only from American tech giants like Google and IBM, but also from other startups emerging from Israel to East Asia.

One factor undermining Japan's global competitiveness in AI is woeful lack of venture capital. Investment in domestic AI startups measures a mere one-twentieth of the global total by one estimate. Data-processing capacity is expensive, so AI ventures need deeper pockets than internet start-ups that can get by simply with a good idea. If PKSHA can live up to investors' growth expectations, funding could be more forthcoming for those that follow.

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