Is Sony (TSE:6758) Still a Buy Despite Its Strong Share Price Run?

Sony Group (TSE:6758) has emerged as a standout performer in 2025, with its share price surging amid robust earnings growth and strategic reinvention. However, as the stock trades near ¥4,414-a 12% premium to its 52-week high-investors face a critical question: does the current valuation reflect sustainable growth, or is the optimism overinflated? This analysis evaluates Sony's investment case through the lenses of valuation realism, growth sustainability, and risk exposure, drawing on recent financial results, analyst forecasts, and divergent DCF model assumptions.

Valuation Realism: A Tale of Two Models

Sony's recent Q3 2025 results underscore its operational strength, with sales rising 5% year-on-year to ¥3,107.9 billion and operating income climbing 10% to ¥429 billion. Analysts have responded with enthusiasm, issuing 12 "Strong Buy" ratings and averaging a 12-month price target of ¥5,119.98, implying an 11.9% upside. Yet, DCF valuations tell a conflicting story. While some models, such as the popular narrative-driven analysis, project a fair value of ¥4,867.50-suggesting undervaluation-others, including the SWS DCF model and ValueInvesting.io, estimate fair values as low as ¥2,773.84, indicating overvaluation by 37%.

The disparity stems from divergent assumptions. The optimistic ¥4,867.50 valuation hinges on aggressive projections for margin expansion, content monetization (e.g., anime and music catalogs), and strategic partnerships. Conversely, the lower DCF estimates rely on conservative inputs, including a 7.1–9.7% WACC and a 1–3% long-term growth rate. These discrepancies highlight the sensitivity of DCF models to subjective inputs, particularly in industries like entertainment and technology, where cash flow predictability is inherently volatile.

Growth Sustainability: Content Mononetization and Strategic Leverage

Sony's ability to sustain growth hinges on its monetization of proprietary content and strategic initiatives. The company's Music and I&SS (Imaging & Sensing Solutions) segments have been standout performers, driven by the global appeal of anime franchises like Demon Slayer and cross-platform partnerships. Additionally, Sony's recent ¥100 billion share buyback program, coupled with its expansion into high-margin sensor markets (e.g., automotive and AI imaging), has bolstered investor confidence.

However, the sustainability of these growth drivers remains contingent on external factors. For instance, the monetization of anime and music relies on the continued popularity of specific IP, which is subject to shifting consumer preferences. Similarly, while Sony's imaging business benefits from AI-driven demand, it faces intensifying competition from rivals like Canon and Samsung, who are aggressively scaling sensor production.

Risks: Geopolitical Pressures and Competitive Dynamics

Despite its strengths, Sony's growth trajectory is not without risks. Geopolitical tensions, particularly in semiconductor supply chains, could disrupt production for its imaging and gaming divisions. Moreover, rising competition in the imaging sector-exacerbated by price wars and technological parity-threatens to erode Sony's margins. Analysts at Alpha Spread caution that even minor supply chain disruptions could amplify volatility in Sony's cash flows, complicating DCF assumptions.

Another critical risk lies in the company's reliance on content-driven revenue. While Sony's anime and music catalogs have generated substantial returns, the market for such IP is increasingly saturated. For example, the success of Demon Slayer has spurred a wave of competing anime and streaming partnerships, diluting Sony's pricing power.

Is Now the Time to Buy?

The decision to invest in Sony hinges on reconciling its strong fundamentals with valuation uncertainties. On one hand, the company's momentum-bolstered by share buybacks, content monetization, and strategic diversification-supports the case for long-term growth. On the other, the wide gap between DCF valuations underscores the risks of overpaying for future cash flows.

For risk-tolerant investors, the current price may still represent an opportunity, particularly if Sony continues to outperform its DCF-based pessimists. However, those prioritizing valuation realism might prefer to wait for a pullback or clearer evidence that the company can sustain its margin gains amid competitive and geopolitical headwinds.

Conclusion

Sony's investment case remains compelling but nuanced. While its operational performance and strategic initiatives justify optimism, the valuation debate underscores the importance of cautious optimism. Investors should monitor key metrics-such as content IP returns, imaging market share, and supply chain resilience-to gauge whether the current price aligns with sustainable growth. In a market where sentiment can swing rapidly, Sony's ability to balance innovation with profitability will ultimately determine its long-term appeal.