How Applied Materials Stock Can Surge To $380

Could Applied Materials stock (NASDAQ:AMAT) reach levels of close to $380 in the next few years? There’s a strong possibility as the company stands to benefit from the surging capital expenditures fueled by the generative artificial intelligence boom. Although AI bellwether Nvidia (NASDAQ: NVDA) dominates the headlines with its stock up over 3x over the last two years and its valuation approaching $4 trillion, lesser-known players such as Applied remain crucial to manufacturing the very AI chips that Nvidia sells. These stocks could offer more value with more meaningful upside potential.

The data speaks for its self. Capital spending on advanced chip making equipment is projected to nearly double between 2023 and 2028, per SEMI, and global capex outlays are expected to top $100 billion in 2025 alone.  Applied, which specializes in advanced equipment and software used to build semiconductor chips ranging from etchers and deposition systems to process control software, may be well-positioned to capture a meaningful share of this investment. The company’s customers include industry giants such as  TSMC, Samsung, and Intel, making it a central player across both the logic and memory segments of the chip market.

Image by Dan Williams from Pixabay

AI Chips Will Drive Revenue Growth

Applied Materials revenues have risen at a healthy pace, growing at an annual rate of 13% over the last five years. Although Applied is likely to see sales growth cool to about 6% for FY’25 to $29 billion, things could pick up. If Applied grows its sales at an average annual rate of close to 22% for the next three years, led by higher demand from more sophisticated tools for producing memory and logic chips for AI, its revenues could move from around $29 billion in FY’25 to around $53 billion by FY’28 or a roughly 81% increase.

There are a couple of trends that could help accelerate revenue growth in the coming years. The generative artificial intelligence (AI) wave is driving surging demand for semiconductors. AI workloads require significant computational power, higher memory capacity, and more complex chips, which need advanced manufacturing processes. AI also requires high-bandwidth memory and sophisticated chip packaging, areas where Applied Materials is well-positioned.For example, producing HBM chips is three times more wafer-intensive than standard DRAM, due to lower bit density and the need for 3D stacking. This directly translates into higher demand for products made by the likes of Applied.

While Applied’s significant exposure to China, which accounted for over a third of its revenue in FY’24, has raised concerns among investors due to U.S. export restrictions, there are signs of easing tensions. Last month, the U.S. and China agreed on a trade framework that includes rare earth exports. As part of this deal, the Trump administration lifted recent export license requirements for some chip design software sold to China. If this thaw in tensions continues and extends to semiconductor equipment exports, companies like Applied could gain greater access to a critical growth market.

Applied Has Already Done It In The Past

Applied Materials has fared well in recent years, growing from levels of about $85 in early 2021 to near  $190 currently. That said, the increase in AMAT stock over the last 4-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 84% in 2021, -38% in 2022, and 68% in 2023. Followed by 9% in 2024 and 17% ytd so far in 2025. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

Margins Should Remain Thick Driven By Higher-End Products

Combine this robust revenue growth with the fact that Applied’s adjusted net margins (net income, or profits after all expenses and taxes, calculated as a percent of revenues) are on an improving trajectory – they grew from 19.6% in FY’19 to 26.5% in FY’24 as the company witnessed better economies of scale and a more premium product mix. We believe that margins could trend still higher to levels of about 31% by FY’28, as Applied focuses on new technologies such as Gate-All-Around (GAA) semiconductor equipment, while better managing its costs. Applied is also seeing its services sales grow at a faster pace compared to products and this could also help margins, as services contracts provide largely recurring revenues and are increasingly focused on more lucrative software. Applied has also been quite disciplined with its capital spending versus other players in the chip space, and this could also help its margins trend higher. Now combining the roughly 81% revenue growth with about 20% increase in margins translates into a roughly 2.2x growth in earnings over the next three years.

Strong Results Mean A Smaller Contraction In Earnings Multiples

Now, if earnings grow 2.2x, the P/E multiple will shrink by 2.2x assuming the stock price stays the same. But that’s exactly what Applied Materials’ investors are betting will not happen. If earnings expand 2.2x over the next few years, instead of the price to earnings multiple shrinking from a figure around 20x now to about 10x, a scenario where the P/E metric stays at about 18x looks quite likely, as the stronger growth and expanding margins give investors more confidence about Applied Materials’ future. This would translate into a roughly 2x growth in Applied stock price from $190 to about $380 within the next few years a real possibility. What about the time horizon for this high-return scenario? While our above example illustrates a roughly three year time frame, in practice, it won’t make much difference whether it takes three years or four, as long as Applied is on this revenue expansion trajectory, with margins holding up, the stock price could respond similarly. 

While there might be upside to AMAT stock, there are risks associated with investing in individual stocks.  On the other hand, the Trefis Reinforced Value (RV) Portfolio, has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.

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