What’s Happening With Applied Materials Stock?

AMAT: Applied Materials logo
Applied Materials

Applied Materials (NASDAQ:AMAT) stock has had a solid run this year, gaining about 38% year-to-date. The company recently posted a better-than-expected set of Q2 FY’23 results in May. While revenue rose by 6% year-over-year to $6.63 billion, earnings stood at $1.86 per share, up by about 7% year-over-year. The growth was driven primarily by the company’s Semiconductor Systems business, which saw higher demand from the foundry and logic chip space. Some areas where demand remains strong include the IoT, communications, automotive, power, and sensors markets. However, Applied has indicated the demand from the memory markets has remained weak as low prices have kept companies from expanding capacity.  Although Applied’s growth for this year is projected to slow versus historical levels, there are some trends that have benefited the stock. More new fabs are likely to be built in response to the semiconductor supply crunch seen through the Covid-19 pandemic. Separately, investors are likely counting on trends such as generative AI to drive long-term demand in the chip industry. Nvidia stock is up more than 170% year-to-date in 2023 as investors bet that demand for high-end GPUs will surge in order to run compute-intensive generative AI algorithms. This could benefit Applied as well, given that customers could look to invest in more high-end chipmaking equipment.

Now, is Applied Materials stock a buy following the rally this year? The semiconductor industry is likely to expand considerably in the long run, with Applied indicating that semiconductors could be a $1 trillion market by the end of this decade. Moreover, Applied has also been looking to expand its revenue streams. Earlier this year the company introduced Centura Sculpta, a machine that can reduce the amount of time and money that semiconductor fabs spend on lithography, taking on Dutch giant ASML which is best known for its extreme ultraviolet lithography technology. However, the near-term demand for the company’s products could be somewhat muted with sales growth projected to slow a bit versus the last few years. Applied trades at about 18x forward earnings, which is not exactly a low valuation at the current juncture. We value Applied Materials stock at about $136 per share, which is roughly in line with the current market price. See our analysis of Applied Materials Valuation for a closer look at what is driving our price estimate for the stock.

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What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.

 Returns Jun 2023
MTD [1]
YTD [1]
Total [2]
 AMAT Return 0% 38% 315%
 S&P 500 Return 2% 12% 91%
 Trefis Multi-Strategy Portfolio 5% 14% 260%

[1] Month-to-date and year-to-date as of 6/7/2023
[2] Cumulative total returns since the end of 2016

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