Applied Materials Stock Jumps 2x More Than Texas Instruments – Make Sense To You?

The stock price for Texas Instruments (NASDAQ: TXN) is up roughly 47% since the beginning of 2019. In comparison, Applied Materials (NASDAQ :AMAT) has seen its stock grow by 94% during the same period. The difference in the stock price growth only makes sense when we look at the growth in Price-to-Earnings(P/E) ratio, where AMAT’s P/E ratio has risen from 10.6x to 21.6x, and Texas Instruments’ P/E has grown from 16x to 25x over the same period. [We calculate P/E as price at the end of the year divided by EPS for that fiscal year].

Apart from that, Texas Instruments’ revenue has fallen just 9% in 2019, compared to the 12.5% drop seen in AMAT’s revenues. Further, Texas Instruments’ net margins in 2019 came in at 35%, 1.9x that of AMAT’s margins, which stood at 18.5%. Does that make sense? We don’t think it does, and we believe Texas Instruments is a good investment at the moment compared to AMAT, as investors seek to ride the rally in technology stocks. Our dashboard, Texas Instruments vs. Applied Materials: Does The Stock Price Movement Make Sense?, has the underlying numbers.

Texas Instruments’ Net Margins are almost double that of Applied Materials’

Let’s look at both companies a little more closely. Texas Instruments is a semiconductor manufacturer, whose products are used in a variety of applications, in the industrial and automotive sectors among others. The semiconductor supply glut of 2019 has hurt Texas Instruments’ revenue growth, with revenues dropping to $14.4 billion in 2019. Furthermore, the company saw its net margins grow from 24.6% in 2017 to 34.9% in 2019, owing to the company’s cost-cutting initiatives which have helped lower operating expenses.

Applied Materials, too, is a leading semiconductor company, which manufactures semiconductor fabrication equipment and display products. AMAT’s revenue grew from $10.8 billion in 2016 to $16.7 billion in 2018, but was hit by the supply glut too, with FY ’19 revenues coming in at $14.6 billion. However, margins have dropped from 23.9% in 2017 to 18.5% in 2019, due to higher R&D expenses.

We believe Texas Instruments’ business looks more attractive compared to AMAT, even at current valuations. Texas Instruments trades at a 25x P/E multiple, compared to AMAT’s stock trading at 21.6x. Both companies have seen a steady rise in P/E Multiple over the years, but Texas Instruments’ business looks much more attractive compared to AMAT.

Looking for more technology stocks insights? See how Qualcomm could bounce back from the Covid-19 crisis in our interactive dashboard, 20% Gain Possible For Qualcomm Stock Post-Covid? In 2008 It Lost 18.7% And Then Gained 40.0%

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams