Margin financing overhang weighs heavily. Will Kioxia's stock price continue to fall?

Title context: Margin financing overhang weighs heavily. Will Kioxia's stock price continue to fall? Text: Kioxia, the Japanese memory chip maker, is facing pressure for further downside in its share price. Many investors had previously borrowed money to buy the stock on leverage, betting on a price rise. Now those positions are piling up, and some investors may be forced to sell at a loss. Margin buying tops the list, turnover shrinks 84% from peak According to Tokyo Stock Exchange data, as of October 15, Kioxia's outstanding leveraged long positions stood at about 920 billion (about $5.8 billion), the largest among all companies listed on the TSE. Meanwhile, as the share price fell, Kioxia's trading activity also declined. Turnover shrank 84% from its peak, dropping to 766 billion last Friday. This leaves some margin traders at risk of being forced to close positions below their purchase price. "The problem is that margin buying has become excessively inflated," said Tomoichiro Kubota, chief market analyst at Matsui Securities. He noted that if retail investors are forced to sell as margin position expiry dates approach, the share price could fall further. Margin buying stays elevated, selling pressure looms ahead AI stocks pull back, margin position expiry pressure rises In recent months, AI-related stocks have been hit hard as the market worries that capital expenditure plans may outpace future growth rates for companies in the sector. Kioxia is one of the hardest-hit stocks, with its share price down 63% from the record high set in June. Shota Sando, an analyst at Tokai Tokyo Intelligence Laboratory, estimates that margin balances will remain elevated at least until around the end of December. By then, investors who bought near the share price's highs will face position expiries. Kioxia makes NAND flash memory used in AI servers and is one of Japan's largest stocks by market value. Japan Exchange Group, the operator of the Tokyo Stock Exchange, announced that it will raise Kioxia's weighting in the TOPIX from this month. That means Kioxia's influence on the broader market will rise further. Short-term funds retreat, earnings and valuation still offer support Takehiko Masuzawa, head of equity trading at PhillipCapital Japan, said short-term investors who bought earlier because of the share price rise no longer have the same motivation to buy. Reduced participation by hedge funds and retail day traders has led to the decline in turnover. However, the company's earnings outlook remains strong. As NAND prices rise, the market forecasts Kioxia's net profit for this fiscal year at about 5.6 trillion, roughly 10 times last year's level. Last Friday, its 12-month forward price-to-earnings ratio was 3.2 times, close to the lowest level since January 2025 and below the 6.2 times of U.S. peer SanDisk. In addition, the market also expects that Kioxia's increased weighting in the TOPIX could bring in 2 trillion of passive fund inflows. However, there are currently few signs that trading enthusiasm will return to previous levels. Lower share price volatility further reduces the stock's appeal to short-term investors. Even though Kioxia implemented a 1-for-3 stock split in Octobera move that typically helps improve liquidityits trading volume has shown almost no notable change. On Monday, as of the time of writing, Kioxia was down more than 3%, while the Nikkei 225 was down 2%.