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AMAT Dips 9.1% in a Month: How Should Investors Play the Stock Now?
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Applied Materials (AMAT - Free Report) has seen a 9.1% decrease in its share price over the past month, which has left many investors questioning whether it is the time to buy the dip.
This drop compares unfavorably with the industry’s fall of 7.6%, the Zacks Computer and Technology sector’s growth of 0.2% and the S&P 500’s return of 1%.
Despite reporting impressive third-quarter fiscal 2024 results, the company is facing significant challenges due to market volatility, high inflation and geo-political tensions.
One-Month Price Performance
Image Source: Zacks Investment Research
What Ails AMAT Stock?
Growing concerns over the Federal Reserve's interest rate policies and fears of a looming U.S. recession do not bode well for Applied Materials.
Escalating tensions between the United States and China countries have been detrimental to the semiconductor industry’s prospects. U.S. restrictions on high-tech exports to China, particularly advanced AI chips, have been a major negative for chip providers.
As the United States tightens restrictions on China, Beijing has intensified its push for self-sufficiency in critical industries. The recent directive to phase out foreign chips from key telecom networks by 2027 underscores Beijing's accelerating efforts to reduce the reliance on Western technology.
This shift poses a serious threat to AMAT, as it faces potential market restrictions.
AMAT Trades Below 50-Day Moving Average
From a technical perspective, Applied Materials' shares are trading below their 50-day moving average. This is typically seen as a bearish signal, indicating the possibility of a further downward trend, at least in the short run.
Image Source: Zacks Investment Research
Technology Innovations Boost Prospects of AMAT
Given the fact that artificial intelligence (AI) has become mainstream in several industries and sectors, Applied Materials’ strategic pivot toward the said technology is a major positive. As businesses of different sizes are rushing to boost their operational efficiency with the power of AI, AMAT has positioned itself as a key player in this transformative wave.
Applied Materials’ technology leadership in leading-edge logic, compute memory or high-performance DRAM, stacking technology and advanced packaging is helping it capitalize on the growing proliferation of AI, which is the main reason behind the rebound in the semiconductor industry this year.
Increasing demand for sophisticated chips required to power AI-centric data centers is benefiting the performance of the company’s Semiconductor Systems segment.
The company is also gaining from tectonic shifts in technology, including the Internet of Things (IoT), autonomous and electric vehicles, and clean energy, which have been shaping the growth trajectory of the semiconductor industry.
AMAT boasts technology leadership in four key semiconductor technologies — leading-edge logic, compute memory or high-performance DRAM, stacking technology and advanced packaging.
It is a clear leader in process equipment for DRAM as it offers strong capabilities in logic and DRAM patterning. It also provides co-optimized hard mask solutions for capacitor scaling.
Applied Materials’ robust Planar DRAM Scaling is gaining strong momentum. Future transition from 6F2 to VT 4F2 is expected to expand the company’s served addressable market (SAM) from $6 billion to $6.5 billion. Also, the subsequent transition to 3D DRAM is expected to grow AMAT’s SAM from $6.5 billion to $7.5 billion.
The company’s patterning systems and technologies are designed to address the challenges resulting from shrinking pattern dimensions and the growing complexity in vertical stacking found in today’s most advanced semiconductor devices.
The company’s leading-edge capabilities enable chipmakers to establish accurate statistical process control, ramp up production runs rapidly and achieve consistently high production yields. Solid momentum in AMAT’s transistor offerings on the back of strength in Gate-All-Around (GAA) is a plus. Transition to GAA is expected to grow AMAT’s transistor SAM from $6 billion to $7 billion.
The introduction of the Backside Power Delivery system has strengthened Applied Materials’ wiring offerings.
AMAT’s manufacturing equipment helps improve the performance, power, yield and costs of semiconductor devices that serve the IoT, communications, automotive, power and sensors markets.
The company’s advanced packaging technologies address challenges arising from the increasing heterogeneous integration of multiple integrated circuit dies in a single package.
Applied Materials, with such a robust technology portfolio, competes well with its peers like Lam Research (LRCX - Free Report) and ASML Holding (ASML - Free Report) .
Impressive Projections
AMAT’s prospects are expected to benefit from technology inflections. Its product innovations and leadership in semiconductor technologies are expected to drive its top-line growth.
For fourth-quarter fiscal 2024, Applied Materials expects net sales of $6.93 billion (+/-$400 million). The Zacks Consensus Estimate for the same is pegged at $6.94 billion, indicating year-over-year growth of 3.2%.
Management expects non-GAAP earnings per share of $2.18 (+/-$0.18). The consensus mark for the same is pegged at $2.17, suggesting year-over-year growth of 2.4%. The EPS estimate has moved up 2.8% over the past 30 days.
Image Source: Zacks Investment Research
Attractive Valuation: A Silver Lining
Despite the recent downturn, Applied Materials' current valuation presents a compelling opportunity.
AMAT is trading at a discount with a forward 12-month Price/Earnings of 20.52X compared with the industry’s 25.38X and lower than the median of 22X. Such a valuation suggests that the market may be undervaluing AMAT’s long-term potential, making it an attractive proposition for patient investors.
Image Source: Zacks Investment Research
Conclusion: A Strategic Hold
Given the combination of both risks and rewards, Applied Materials' stock is a strategic hold for now. While unfavorable technical indicators, rising competition, macro headwinds and escalating Sino-U.S. tensions are significant concerns, the current valuation and strong technology portfolio suggest that this Zacks Rank #3 (Hold) stock may be oversold. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Investors should keep an eye on the company’s ability to navigate these challenges. However, for those with a long-term view, holding on to AMAT could prove rewarding.
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AMAT Dips 9.1% in a Month: How Should Investors Play the Stock Now?
Applied Materials (AMAT - Free Report) has seen a 9.1% decrease in its share price over the past month, which has left many investors questioning whether it is the time to buy the dip.
This drop compares unfavorably with the industry’s fall of 7.6%, the Zacks Computer and Technology sector’s growth of 0.2% and the S&P 500’s return of 1%.
Despite reporting impressive third-quarter fiscal 2024 results, the company is facing significant challenges due to market volatility, high inflation and geo-political tensions.
One-Month Price Performance
Image Source: Zacks Investment Research
What Ails AMAT Stock?
Growing concerns over the Federal Reserve's interest rate policies and fears of a looming U.S. recession do not bode well for Applied Materials.
Escalating tensions between the United States and China countries have been detrimental to the semiconductor industry’s prospects. U.S. restrictions on high-tech exports to China, particularly advanced AI chips, have been a major negative for chip providers.
As the United States tightens restrictions on China, Beijing has intensified its push for self-sufficiency in critical industries. The recent directive to phase out foreign chips from key telecom networks by 2027 underscores Beijing's accelerating efforts to reduce the reliance on Western technology.
This shift poses a serious threat to AMAT, as it faces potential market restrictions.
AMAT Trades Below 50-Day Moving Average
From a technical perspective, Applied Materials' shares are trading below their 50-day moving average. This is typically seen as a bearish signal, indicating the possibility of a further downward trend, at least in the short run.
Image Source: Zacks Investment Research
Technology Innovations Boost Prospects of AMAT
Given the fact that artificial intelligence (AI) has become mainstream in several industries and sectors, Applied Materials’ strategic pivot toward the said technology is a major positive. As businesses of different sizes are rushing to boost their operational efficiency with the power of AI, AMAT has positioned itself as a key player in this transformative wave.
Applied Materials’ technology leadership in leading-edge logic, compute memory or high-performance DRAM, stacking technology and advanced packaging is helping it capitalize on the growing proliferation of AI, which is the main reason behind the rebound in the semiconductor industry this year.
Increasing demand for sophisticated chips required to power AI-centric data centers is benefiting the performance of the company’s Semiconductor Systems segment.
The company is also gaining from tectonic shifts in technology, including the Internet of Things (IoT), autonomous and electric vehicles, and clean energy, which have been shaping the growth trajectory of the semiconductor industry.
AMAT boasts technology leadership in four key semiconductor technologies — leading-edge logic, compute memory or high-performance DRAM, stacking technology and advanced packaging.
It is a clear leader in process equipment for DRAM as it offers strong capabilities in logic and DRAM patterning. It also provides co-optimized hard mask solutions for capacitor scaling.
Applied Materials’ robust Planar DRAM Scaling is gaining strong momentum. Future transition from 6F2 to VT 4F2 is expected to expand the company’s served addressable market (SAM) from $6 billion to $6.5 billion. Also, the subsequent transition to 3D DRAM is expected to grow AMAT’s SAM from $6.5 billion to $7.5 billion.
The company’s patterning systems and technologies are designed to address the challenges resulting from shrinking pattern dimensions and the growing complexity in vertical stacking found in today’s most advanced semiconductor devices.
The company’s leading-edge capabilities enable chipmakers to establish accurate statistical process control, ramp up production runs rapidly and achieve consistently high production yields. Solid momentum in AMAT’s transistor offerings on the back of strength in Gate-All-Around (GAA) is a plus. Transition to GAA is expected to grow AMAT’s transistor SAM from $6 billion to $7 billion.
The introduction of the Backside Power Delivery system has strengthened Applied Materials’ wiring offerings.
AMAT’s manufacturing equipment helps improve the performance, power, yield and costs of semiconductor devices that serve the IoT, communications, automotive, power and sensors markets.
The company’s advanced packaging technologies address challenges arising from the increasing heterogeneous integration of multiple integrated circuit dies in a single package.
Applied Materials, with such a robust technology portfolio, competes well with its peers like Lam Research (LRCX - Free Report) and ASML Holding (ASML - Free Report) .
Impressive Projections
AMAT’s prospects are expected to benefit from technology inflections. Its product innovations and leadership in semiconductor technologies are expected to drive its top-line growth.
For fourth-quarter fiscal 2024, Applied Materials expects net sales of $6.93 billion (+/-$400 million). The Zacks Consensus Estimate for the same is pegged at $6.94 billion, indicating year-over-year growth of 3.2%.
Management expects non-GAAP earnings per share of $2.18 (+/-$0.18). The consensus mark for the same is pegged at $2.17, suggesting year-over-year growth of 2.4%. The EPS estimate has moved up 2.8% over the past 30 days.
Image Source: Zacks Investment Research
Attractive Valuation: A Silver Lining
Despite the recent downturn, Applied Materials' current valuation presents a compelling opportunity.
AMAT is trading at a discount with a forward 12-month Price/Earnings of 20.52X compared with the industry’s 25.38X and lower than the median of 22X. Such a valuation suggests that the market may be undervaluing AMAT’s long-term potential, making it an attractive proposition for patient investors.
Image Source: Zacks Investment Research
Conclusion: A Strategic Hold
Given the combination of both risks and rewards, Applied Materials' stock is a strategic hold for now. While unfavorable technical indicators, rising competition, macro headwinds and escalating Sino-U.S. tensions are significant concerns, the current valuation and strong technology portfolio suggest that this Zacks Rank #3 (Hold) stock may be oversold. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Investors should keep an eye on the company’s ability to navigate these challenges. However, for those with a long-term view, holding on to AMAT could prove rewarding.