When James Smith of London-based Palliser Capital penned a letter to the board of Toto Ltd., he wasn’t writing to praise the company’s famous heated bidets or revolutionary Washlet technology. Instead, he called the Japanese manufacturer “the most undervalued and overlooked AI memory beneficiary” currently trading on public markets.
It’s a provocative claim about a company most people associate with bathroom fixtures. But according to a Financial Times report, Palliser Capital has taken a position in Toto’s shareholder registry precisely because of what happens far from the company’s consumer-facing toilet business. Its advanced ceramics division supplies critical components to semiconductor manufacturers.
For decades, Toto has been producing precision ceramic parts that play essential roles in chipmaking. These aren’t decorative items or simple industrial goods. They’re highly engineered components that hold silicon wafers in place during delicate manufacturing processes like etching and deposition. The materials must withstand extreme thermal stress, prevent contamination, and meet extraordinarily tight tolerances that can make or break chip yields.
Toto’s advanced ceramics catalog includes air bearings, bonding capillaries, and structures designed specifically for high-precision semiconductor tools. Among these products are electrostatic chucks, ceramic platforms that use electrical charges to secure wafers during low-temperature processing steps that are increasingly common in cutting-edge chip production.
What caught Palliser’s attention is the disconnect between how the market values Toto and what its ceramics business actually contributes to the bottom line. Recent reporting indicates that advanced ceramics account for roughly 40 percent of the company’s operating income, despite the toilet business dominating its public image.
The timing of Palliser’s interest isn’t coincidental. Memory chip manufacturers are racing to expand capacity as artificial intelligence applications consume unprecedented amounts of RAM and storage. The surge in demand has put upward pressure on memory prices and driven higher utilization rates at wafer fabrication facilities worldwide. More chips being made means more demand for the specialized tools and components that enable their production.
In its letter to Toto’s board, Palliser urged the company to better communicate the value of its ceramics segment to investors, streamline how it allocates capital, and deploy its approximately ¥76 billion ($496 million) in net cash more strategically. The activist investor suggested that Toto should consider expanding its ceramics operations ahead of competitors who might recognize the same opportunity.
Goldman Sachs and other research analysts have already begun highlighting the profit potential in Toto’s semiconductor components business, with some upgrading their ratings based on expectations of a recovering NAND flash memory market. The market has responded: Toto’s shares have climbed nearly 40 percent in the first two months of 2026, driven by both analyst coverage and news of Palliser’s involvement.
The thesis rests on more than just narrative. Data center operators building out AI infrastructure need massive quantities of memory chips. Semiconductor manufacturers need specialized equipment to produce those chips at scale. And that equipment requires precision ceramic components that only a handful of companies worldwide can manufacture to the necessary specifications.
Still, investors should note that much of the optimism about Toto’s growth runway comes from Palliser’s own shareholder pitch. The claim of a five-year technological advantage in this space represents a bullish investment case, not an independently verified fact. Palliser has clear financial incentives for that claim to prove accurate.
Questions also remain about how quickly demand will actually materialize. While electrostatic chucks certainly play important roles in advanced manufacturing processes, major memory producers have been cautious about large-scale capacity expansions. Several have publicly cited concerns about being left with oversupply if AI demand cools suddenly, a risk that industry observers take seriously given ongoing debate about whether current AI investment levels are sustainable.
