Applied Materials Stock: Join the Rally at a 31% Discount

Applied Materials (AMAT) stock might be a good buy now. Why? Because you get high margins – reflective of pricing power and cash generation capacity – for a discounted price. Companies like this generate consistent, predictable profits and cash flows, which reduce risk and allow capital to be reinvested. The market tends to reward that.

What Is Happening With AMAT

AMAT is up 55% so far this year, but is actually 31% cheaper based on its P/S (Price-to-Sales) ratio compared to 1 year ago.

Here is what’s going well for the company. Applied Materials posted record annual revenue in fiscal 2025, propelled by strong customer demand for high-value AI-enabling technologies, advanced logic, and high-performance DRAM solutions. October 2025 saw the launch of new products like the Kinex Bonding System and Centura Xtera Epi system, which enhance chip performance and yield. Despite a Q4 revenue decline and Q1 guidance implying a year-over-year dip, a favorable product mix and solid pricing power support strong cash generation, with management anticipating higher demand from calendar 2026.

AMAT Has Strong Fundamentals

• Recent Profitability: Nearly 26.9% operating cash flow margin and 30.1% operating margin LTM.
• Long-Term Profitability: About 28.5% operating cash flow margin and 29.4% operating margin last 3-year average.
• Revenue Growth: Applied Materials saw growth of 6.6% LTM and 4.4% last 3-year average, but this is not a growth story
• Available At Discount: At P/S multiple of 7.0, AMAT stock is available at a 31% discount vs 1 year ago.

Below is a quick comparison of AMAT fundamentals with S&P medians.

*LTM: Last Twelve Months

Don’t Expect A Slam Dunk, Though

While AMAT stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. AMAT fell 76% during the Dot-Com crash, 64% in the Global Financial Crisis, and 55% during the Inflation Shock. Even the milder pullbacks in 2018 and the Covid crash still triggered declines over 43% and 52%. Solid fundamentals don’t make it immune. When the market sells off hard, AMAT takes a hit like most others. But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read AMAT Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

If you want more details, read Buy or Sell AMAT Stock.

How We Arrived At AMAT Stock

AMAT piqued our interest because it meets the following criteria:

1. Greater than $10 Bil in market cap
2. High CFO (cash flow from operations) margins or operating margins
3. Meaningfully declined in valuation over the past 1 year

But if AMAT doesn’t look good enough to you, here are other stocks that also check all these boxes:

1. Visa (V)
2. T-Mobile US (TMUS)
3. Salesforce (CRM)

Notably, a portfolio that was built starting 12/31/2016 with stocks that fulfil the criteria above would have performed as follows:

• Average 12-month forward returns of nearly 19%
• 12-month win rate (percentage of picks returning positive) of about 72%

Portfolios Are The Smarter Way To Invest

Individual stocks can soar or tank but one thing matters: staying invested. The right portfolio can help you stay invested, capture upside and mitigate the downside associated with any individual stock.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. 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.