Summary
A covering broker has reduced its valuation target for Sony Group and lowered earnings estimates to reflect a sharp increase in memory prices, but left its Buy recommendation intact. The research note argues that most of the downside from rising memory costs is already embedded in the share price after a substantial market decline. The broker also highlighted areas of strategic progress for the company and flagged artificial intelligence as an emerging medium-term concern for content businesses.
Valuation and earnings adjustments
The broker cut its sum-of-the-parts price objective to A54,600 from A55,000. This adjustment primarily reflects a 5% reduction in the brokers FY3/27 operating profit estimate, a change attributed to sharply higher memory prices that weigh on component costs.
Despite the reduction to the price objective, the broker maintained its Buy rating on the stock, indicating confidence that longer-term value drivers remain intact even as near-term margins are pressured by memory inflation.
Modeled impacts of DRAM price moves
The note set out scenarios to quantify potential earnings effects from rising DRAM prices. In a base-case assumption where DRAM prices climb 70% year on year in FY3/27, the broker estimates group-wide earnings per share would be trimmed by about 6%. Under a more severe scenario in which DRAM prices rise by a factor of 3.5, the brokers model shows an EPS impact of roughly 17%.
Market reaction and context
Sonys shares have fallen roughly 30% from their November 2025 peak. The broker calculated that the companys market capitalization has declined by approximately A57tn since that peak, a drop that dwarfs the brokers estimate of a A594bn reduction in FY3/27 operating profit attributed to higher memory costs. The broker sees that discrepancy as evidence that the memory-price-driven earnings hit has been largely priced into the stock.
Near-term catalyst and expectations
Attention now shifts to Sonys third-quarter results, scheduled for 5 February. The broker expects operating profit of A5470bn for the quarter, noting that this forecast is broadly in line with market consensus. The research note added that any quantified guidance from Sony on the effect of higher memory prices on FY3/27 results could help reduce uncertainty and serve as a potential catalyst for the stock.
Strategic outlook and structural themes
Beyond the immediate impact of memory costs, the broker reiterated confidence in Sonys longer-term strategy. It pointed to continued progress in monetizing intellectual property and executing portfolio reforms, citing recent steps such as consolidation of IP assets, new investments in music publishing, and the deconsolidation of the television business.
The broker also flagged artificial intelligence as a growing medium-term consideration for Sonys content operations, saying investors will increasingly scrutinize how film and music divisions intend to coexist with and potentially leverage wider AI adoption.
Key takeaways
- The broker reduced its price objective to A54,600 and cut FY3/27 operating profit estimates by 5% because of higher memory prices while keeping a Buy rating.
- Scenario analysis suggests a 70% year-on-year DRAM price rise would reduce EPS by about 6%, while a 3.5x increase could hit EPS by about 17%.
- Sonys market cap drop of around A57tn since November 2025 far exceeds the brokers estimated A594bn earnings impact for FY3/27 linked to memory cost inflation.
Risks and uncertainties
- Memory-price volatility: Further unexpected DRAM price increases could continue to pressure margins for Sonys products and components, affecting the electronics and semiconductors sectors.
- Short-term guidance clarity: Lack of quantified disclosure from Sony about memory-cost impacts in FY3/27 could sustain investor uncertainty in equity markets.
- AI-related content risks: The emergence of artificial intelligence in film and music raises medium-term strategic questions for Sonys content businesses, potentially affecting the broader media and entertainment sector.