When people think about artificial intelligence (AI), the focus often rests on the fierce competition between startups in the United States and China, which are vying to create the next groundbreaking AI model. At first glance, this rivalry appears to be a high-stakes contest of algorithms, sophisticated image generation technologies, and billion-dollar valuations that dominate headlines. However, Japan is charting a significantly different course in the realm of artificial intelligence.

Unlike its competitors, Japan is navigating the complexities of AI development with a more subdued approach, heavily influenced by stringent data privacy regulations and a language barrier that limits access to the open-source tools and datasets that are pivotal to todays generative AI advancements. Consequently, Japan's AI landscape has remained largely behind the scenes, with its focus primarily on enhancing business tools within the realms of manufacturing and automation.

Interestingly, the ongoing global AI arms race is inadvertently catalyzing growth in some of Japans most overlooked sectorsnot in software development, but rather in the physical infrastructure that underpins AI technology. Companies that specialize in producing precision motors and cooling fans, once the cornerstone of Japans industrial economy, have experienced fluctuating fortunes over recent years. For instance, Nidec, a company known for its electric motors, has been heavily investing in the electric vehicle (EV) market, banking on this sector as a promising avenue for growth.

Other local players, such as Sanyo Denki, which manufactures cooling fans and power supply systems, along with Murata Manufacturing, known for its electronic components, have historically catered to industrial and automotive clients. However, the recent slowdown in EV adoption, particularly within Europe, has dealt a significant blow to Nidec. Production cutbacks from major automotive manufacturers and a dip in consumer demand have taken a toll on Nidecs automotive segment, as evidenced by a staggering share price drop of more than a third over the past year.

In a twist of fate, the increasing scale of AI infrastructurecharacterized by intense heat generation and substantial power requirementshas sparked a burgeoning global demand for cooling and power delivery solutions, areas where these Japanese firms excel. Remarkably, the very companies that previously struggled to identify new growth pathways in the EV sector are now witnessing a resurgence in demand.

Nidecs strategic pivot towards AI infrastructure is already yielding impressive results. The company announced a record operating profit of 175.5 billion (approximately $1.2 billion) for the nine-month period ending in December, a surge largely fueled by rising orders from data center clients. Similarly, other industry stalwarts such as Hitachi, Sanyo Denki, and Murata, long viewed as part of Japans aging industrial base, now find themselves uniquely positioned to capitalize on the global expansion of AI infrastructure.

Although Japan may not be leading the charge in consumer-oriented AI development, its industrial engineering firms are proving to be increasingly valuable in constructing the physical infrastructure that drives the worldwide proliferation of AI technology. In this process, many of Japans most unassuming companies are discovering a surprising second act, reinvigorated by the needs of a rapidly evolving technological landscape.

For any further inquiries or discussions, please reach out to me at june.yoon@ft.com.