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The company is gaining from tectonics shifts in technology, including Artificial Intelligence (AI), Generative AI, the Internet of Things (IoT), autonomous and electric vehicles, and clean energy, which have been shaping the growth trajectory of the semiconductor industry.
AMAT has positioned itself as a key player in this transformative wave.
One-Year Price Performance
Image Source: Zacks Investment Research
However, the growing proliferation of AI has made the semiconductor equipment industry highly competitive. AMAT faces stiff competition from its peers like Lam Research (LRCX - Free Report) , ASML Holdings (ASML - Free Report) and KLA Corporation (KLAC - Free Report) , which are also making concerted efforts to capitalize on the current AI boom.
Persistent inflation, market volatility and escalating tensions between the United States and China have been detrimental to the semiconductor industry’s prospects. These are acting as headwinds for the company.
Against this backdrop, the question that arises is whether AMAT’s technology advancements will continue to drive momentum in its share price amid macroeconomic headwinds. Let us delve deeper into the fundamentals of the company.
AMAT Rides on Technology Inflections
Technology inflections are creating the necessity for high-volume production of advanced chips. Applied Materials stands to benefit from the same on the back of its wide range of manufacturing equipment used in fabricating semiconductor chips.
Increasing demand for sophisticated chips required to power AI-centric data centers, enabled by key semiconductor technologies — leading-edge logic, compute memory or high-performance DRAM; stacking technology; and advanced packaging to connect the logic and memory chips and create a system in a package — is a tailwind.
The company has strong capabilities in logic and solid position in DRAM patterning, and offers co-optimized hard mask solutions for capacitor scaling. These factors make AMAT a clear leader in process equipment for DRAM.
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.
Applied Materials delivers leading-edge capabilities that enable chipmakers to establish accurate statistical process control, ramp up production runs rapidly and achieve consistently high production yields.
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 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.
AMAT’s transistor, and interconnect products and technologies enable continued power and performance improvements. Thanks to this, the company has leadership in material engineering processes in advanced logic. The new transistor process flows and the shift from FinFET to Gate-All-Around (GAA) help grow AMAT’s available market for the transistor module. 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.
Applied Materials’ metrology, inspection and imaging capabilities and algorithms are capable of meeting the most advanced technical demands, as they are powered by optical and e-beam technologies.
The company’s packaging technologies address challenges from the increasing heterogeneous integration of multiple integrated circuit dies in a single package.
Rising Estimate Trend Bodes Well for AMAT
Applied Materials’ business is expected to be on a growth trajectory, with significant design wins. Its near- and long-term prospects are expected to benefit from the technology-inflection-led growing demand for next-generation chips on the back of its product innovations, and leadership in leading-edge logic, compute memory, high bandwidth memory and advanced packaging.
The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $27.07 billion, indicating year-over-year growth of 2.1%. The same for fiscal 2024 earnings is pinned at $8.49 per share, suggesting a year-over-year rise of 5.5%. The EPS estimate has been revised upward by 0.2% over the past 30 days.
The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $30.02 billion, indicating year-over-year growth of 10.9%. The same for fiscal 2025 earnings is pinned at $9.63 per share, suggesting year-over-year growth of 13.4%. The EPS estimate has been revised upward by 0.3% over the past 30 days.
Image Source: Zacks Investment Research
Attractive Valuation: A Silver Lining
AMAT is trading at a discount with a forward 12-month Price/Earnings of 21.51X compared with the industry’s 24.73X and lower than the median of 22.02X. 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
Applied Materials’ product innovations and leadership in semiconductor technologies present a compelling opportunity.
However, macroeconomic concerns surrounding AMAT’s prospects are headwinds.
Applied Materials currently carries a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. However, investors who already own the stock might expect the company’s prospects to be rewarding over a longer term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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AMAT Gains 46.9% in a Year: Should You Buy, Sell or Hold the Stock?
Applied Materials’ (AMAT - Free Report) shares have rallied 46.9% in the past year, outperforming the Zacks Semiconductor Equipment-Wafer Fabrication industry’s return of 42.9%, the broader technology sector’s rise of 40.3% and the S&P 500 index’s growth of 33.7%.
The company is gaining from tectonics shifts in technology, including Artificial Intelligence (AI), Generative AI, the Internet of Things (IoT), autonomous and electric vehicles, and clean energy, which have been shaping the growth trajectory of the semiconductor industry.
AMAT has positioned itself as a key player in this transformative wave.
One-Year Price Performance
Image Source: Zacks Investment Research
However, the growing proliferation of AI has made the semiconductor equipment industry highly competitive. AMAT faces stiff competition from its peers like Lam Research (LRCX - Free Report) , ASML Holdings (ASML - Free Report) and KLA Corporation (KLAC - Free Report) , which are also making concerted efforts to capitalize on the current AI boom.
Persistent inflation, market volatility and escalating tensions between the United States and China have been detrimental to the semiconductor industry’s prospects. These are acting as headwinds for the company.
Against this backdrop, the question that arises is whether AMAT’s technology advancements will continue to drive momentum in its share price amid macroeconomic headwinds. Let us delve deeper into the fundamentals of the company.
AMAT Rides on Technology Inflections
Technology inflections are creating the necessity for high-volume production of advanced chips. Applied Materials stands to benefit from the same on the back of its wide range of manufacturing equipment used in fabricating semiconductor chips.
Increasing demand for sophisticated chips required to power AI-centric data centers, enabled by key semiconductor technologies — leading-edge logic, compute memory or high-performance DRAM; stacking technology; and advanced packaging to connect the logic and memory chips and create a system in a package — is a tailwind.
The company has strong capabilities in logic and solid position in DRAM patterning, and offers co-optimized hard mask solutions for capacitor scaling. These factors make AMAT a clear leader in process equipment for DRAM.
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.
Applied Materials delivers leading-edge capabilities that enable chipmakers to establish accurate statistical process control, ramp up production runs rapidly and achieve consistently high production yields.
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 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.
AMAT’s transistor, and interconnect products and technologies enable continued power and performance improvements. Thanks to this, the company has leadership in material engineering processes in advanced logic. The new transistor process flows and the shift from FinFET to Gate-All-Around (GAA) help grow AMAT’s available market for the transistor module. 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.
Applied Materials’ metrology, inspection and imaging capabilities and algorithms are capable of meeting the most advanced technical demands, as they are powered by optical and e-beam technologies.
The company’s packaging technologies address challenges from the increasing heterogeneous integration of multiple integrated circuit dies in a single package.
Rising Estimate Trend Bodes Well for AMAT
Applied Materials’ business is expected to be on a growth trajectory, with significant design wins. Its near- and long-term prospects are expected to benefit from the technology-inflection-led growing demand for next-generation chips on the back of its product innovations, and leadership in leading-edge logic, compute memory, high bandwidth memory and advanced packaging.
The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $27.07 billion, indicating year-over-year growth of 2.1%. The same for fiscal 2024 earnings is pinned at $8.49 per share, suggesting a year-over-year rise of 5.5%. The EPS estimate has been revised upward by 0.2% over the past 30 days.
The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $30.02 billion, indicating year-over-year growth of 10.9%. The same for fiscal 2025 earnings is pinned at $9.63 per share, suggesting year-over-year growth of 13.4%. The EPS estimate has been revised upward by 0.3% over the past 30 days.
Image Source: Zacks Investment Research
Attractive Valuation: A Silver Lining
AMAT is trading at a discount with a forward 12-month Price/Earnings of 21.51X compared with the industry’s 24.73X and lower than the median of 22.02X. 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
Applied Materials’ product innovations and leadership in semiconductor technologies present a compelling opportunity.
However, macroeconomic concerns surrounding AMAT’s prospects are headwinds.
Applied Materials currently carries a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. However, investors who already own the stock might expect the company’s prospects to be rewarding over a longer term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.