What To Expect As Applied Materials Reports Q3 Earnings?

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Applied Materials

Applied Materials (NASDAQ:AMAT) is expected to publish its Q3 FY’23 results on August 17, reporting on another quarter that is likely to see a slowdown in sales due to potentially weaker demand for equipment from the memory market. We expect revenues for the quarter to decline by about 9.5% year-over-year to about $5.9 billion, slightly below estimates. We expect that earnings will stand at about $1.70 per share. See our analysis of Applied Materials Earnings Preview for a closer look at what to expect when the company reports results.

Semiconductor fabs have been slowing down their budgets for new equipment in recent quarters, following rising supply and easing demand for chips as Covid-19 tailwinds ease for the consumer electronics industry, with sales of laptops, tablets, and smartphones declining versus last year. Although Applied posted a better-than-expected set of results over Q2, due to slightly higher demand from the foundry and logic chip space led by IoT, communications, automotive, power, and sensors markets, the company indicated that demand from memory markets has remained weak as low prices have kept companies from expanding capacity. For Q3, Applied expected its semiconductor systems revenue to come in around $4.5 billion, which is down nearly 5% year over year, with Applied’s global services business to grow by about 1% to $1.43 billion.

Now, is Applied Materials stock a buy ahead of earnings? Applied Materials stock has gained about 50% this year to date and currently trades at about $146 per share. This translates into a valuation of about 22x projected FY’23 earnings, which is not exactly cheap, considering that the company’s revenues and earnings are projected to decline this year. That said, there are some positives as well for the stock. The semiconductor industry is likely to expand considerably, driven by trends such as generative AI and cloud computing. 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 that semiconductor fabs spend on lithography, taking on Dutch giant ASML which is best known for its extreme ultraviolet lithography technology. We value Applied Materials stock at about $136 per share, which is slightly below the current market price. However, we will be revisiting our price estimate post the earnings release. 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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Returns Aug 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 AMAT Return -4% 50% 351%
 S&P 500 Return -2% 17% 100%
 Trefis Multi-Strategy Portfolio -4% 24% 298%

[1] Month-to-date and year-to-date as of 8/7/2023
[2] Cumulative total returns since the end of 2016

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