NEC just posted Q2 2027 results with the stock closing at ¥4,954 after a 7 day slide of about 11%. The headline is simple: profitability keeps getting heavier even as sentiment cools. Trailing 12 month earnings rose 33.8% and net profit margin moved to 8.3% from 6.7%, yet the share price has drifted lower into this release.
That disconnect between a richer earnings base and a softer price sets up a clear question for you. Is this cautious repricing justified by valuation strain at a 21x P/E, or is short term emotion outpacing the fundamentals NEC just reported?
Like NEC's earnings power but uneasy about paying 21x P/E into a shaky share price reaction? Use this as a reference point and weigh it against our 15 high quality undervalued stocks .
Q2 2027 Earnings Summary
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Revenue (Q2 2027 vs Q2 2026):¥934,083m vs. ¥854,121m (up 9.4%)
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Net Income, Excl. Extra Items (Q2 2027 vs Q2 2026):¥66,741m vs. ¥53,520m (up 24.7%)
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Basic EPS (Q2 2027 vs Q2 2026):¥50.31 vs. ¥40.15 (up 25.3%)
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Net Profit Margin, Trailing 12 Months (Q2 2027 vs Q2 2026):8.3% vs. 6.7% (expansion of 1.6 percentage points)
NEC just booked the world's first commercial petabit submarine system. Ask Charlie what NEC's petabit cable really changes for growth .
NEC's AI Pivot: BluStellar Execution Under the Microscope
The bullish script says BluStellar plus software and defense should steadily pull NEC toward higher quality earnings and returns.
"The main factor that has to go right is NEC successfully executing its AI-native BluStellar growth plan while raising overseas contributions and reforming or exiting lower-margin businesses so that group non-GAAP operating margins and ROIC move toward stated goals."
H1 FY2027 shows some of that playing out. Domestic IT Services profit improved, BluStellar scenario revenue grew 29.5% and margins widened by 1.9 points. International IT profit climbed with CSG. Raised full year operating profit guidance to ¥460b points to early progress, although ROIC and long term BluStellar targets remain unproven at this stage.
Hardware, Macro Risks: NEC Bear Case Stress Test
On the risk side, the worry is that hardware cyclicality and macro shocks erode the AI and software gains.
"NEC is counting on rising contributions from AI related and BluStellar style activities. However, the allowance for macro and component risks alongside forecast Telecom Services revenue pressure shows that hardware centric and cyclical parts of the portfolio still matter, and a sharper slowdown in these areas could offset software and AI growth in a way that restrains consolidated revenue, operating profit and future earnings per share."
Recent numbers partly temper that concern. Component issues were limited in H1 and group revenue still rose 11.7% y/y with operating profit higher and guidance raised. Telecom Services pressure remains flagged, and management kept a ¥100b revenue and ¥30b profit cushion, which confirms the risk is real even if not yet biting hard into reported results.
One Narrative has put a figure on that disagreement. → See the Narrative with its higher Fair Value, assumptions and all .
Hunt For Earnings Disconnects
NEC just showed how firmer profitability can coincide with a cooling share price. The real opportunity is finding stocks that could be undervalued before the market corrects them.
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Company 1 - 30% below our estimate - supply complex photomasks that enable process shrinks and tighter device tolerances.
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Company 2 - 35% below our estimate - win long-duration infrastructure and remediation projects as public agencies outsource inspection and maintenance.
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Company 3 - 21% below our estimate - sell data and document platforms adopted once reporting and analytics outgrow manual workflows.
Those are three of them. See all 15 potentially undervalued companies →
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include 6701.T .
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