Evaluating NTT DATA's Long-Term Prospects Amid Index Clarifications and Valuation Metrics

The recent speculation surrounding NTT DATA Group Corporation's inclusion in the S&P Japan 500 index has sparked debate among investors. However, a closer examination of the facts reveals no official removal of the company from the index as of September 2025. According to a report by S&P Global, the S&P Japan 500 Scored & Screened Index remains part of the 2025 Corporate Sustainability Assessment (CSA) framework, but no explicit exclusion of NTT DATA has been documentedCSA 2025 Invitation Status - S&P Global^[1]. This clarification is critical, as it shifts the focus from index status to a deeper evaluation of the company's competitive positioning and valuation fundamentals.

Competitive Positioning: Innovation as a Growth Engine

NTT DATA's long-term resilience hinges on its strategic alignment with global technology trends. The company's Technology Foresight 2025 report underscores its commitment to innovation, identifying key areas such as ambient intelligence, digital sustainability, and enhanced human-machine collaboration as drivers of future growthNTT DATA Unveils NTT DATA Technology Foresight 2025 report^[2]. These initiatives position NTT DATA as a leader in Japan's digital transformation, a market projected to expand significantly in the coming decade.

The company's financials reinforce this narrative. As of May 2025, NTT DATA reported a trailing P/E ratio of 23x and an Enterprise Value to EBITDA ratio of 8.84x, metrics that suggest a balance between growth expectations and operational efficiencyNTT DATA Group Corporation: Valuation Ratios, Analysts' …^[3]. Its Return on Equity (ROE) of 4.93% and a 3.07% profit margin further highlight its ability to generate returns despite operating in a capital-intensive sectorNTT DATA Group Corporation: Valuation Ratios, Analysts' …^[3]. However, the -1.05% Free Cash Flow Yield raises concerns about liquidity constraints, a challenge that could test its capacity to fund innovation without external financingNTT DATA Group Corporation: Valuation Ratios, Analysts' …^[3].

Valuation Potential: Balancing Risks and Opportunities

While NTT DATA's valuation appears reasonable relative to its peers, investors must weigh its strengths against structural risks. Data from Marketscreener indicates that the company's Enterprise Value of 8,447,990 million yen reflects a market capitalization that aligns with its industry positionNTT DATA Group Corporation: Valuation Ratios, Analysts' …^[3]. Yet, the absence of positive free cash flow and the recent credit rating downgrade by S&P Global—linked to its NTT Data Group acquisition—introduce volatilityCSA 2025 Invitation Status - S&P Global^[1].

A critical question is whether NTT DATA's investment in digital sustainability and AI-driven solutions can offset these risks. The company's proactive approach to addressing global challenges, such as climate resilience and workforce upskilling, aligns with ESG (Environmental, Social, and Governance) trends that increasingly influence investor sentimentNTT DATA Unveils NTT DATA Technology Foresight 2025 report^[2]. For instance, its inclusion in the CSA 2025 framework—though not as an index constituent—signals recognition of its sustainability effortsCSA 2025 Invitation Status - S&P Global^[1].

Investors should also consider historical performance around earnings events. A backtest of NTT DATA's stock behavior following earnings releases from 2022 to 2025 could provide insights into short-term volatility and investor sentiment shifts. Such analysis would help contextualize the company's ability to meet or exceed expectations, which often drives near-term price action.

Strategic Outlook: Navigating a Dynamic Landscape

NTT DATA's ability to maintain its competitive edge will depend on its execution of long-term strategies. The company's focus on hybrid cloud solutions, cybersecurity, and AI integration mirrors global demand, particularly in Asia-Pacific markets where digital adoption is acceleratingNTT DATA Unveils NTT DATA Technology Foresight 2025 report^[2]. However, intensifying competition from regional tech giants like Fujitsu and IBM Japan could pressure margins unless NTT DATA continues to differentiate through proprietary technologies.

From a valuation perspective, the stock's 23x P/E ratio suggests moderate growth expectations, but its EBITDA multiple of 8.84x indicates undervaluation relative to peers with similar cash flow profilesNTT DATA Group Corporation: Valuation Ratios, Analysts' …^[3]. Investors should monitor quarterly earnings reports and free cash flow trends to assess whether the company can stabilize liquidity while scaling its innovation initiatives.

Conclusion

NTT DATA's exclusion from the S&P Japan 500 index is a non-event, as no such removal has occurred. Instead, the company's long-term prospects rest on its ability to leverage innovation, navigate ESG expectations, and address liquidity challenges. While valuation metrics present a mixed picture, its strategic focus on high-growth technology trends offers a compelling case for patient investors willing to navigate near-term uncertainties.