Applied Materials stock has had a successful year with a 31% increase year-to-date, outperforming its semiconductor industry peer Texas Instruments. The company’s stock has seen significant gains over the past few years, rising by 145% since January 2021. Arista Networks, another company benefiting from generative AI, has seen its stock surge by over 300% over the same period. Applied Materials posted better-than-expected Q2 FY’24 results, with revenue coming in roughly flat compared to last year at $6.65 billion, and adjusted earnings standing at $2.09 per share. The semiconductor downcycle has bottomed out, with memory prices increasing and PC sales expected to improve this year.
Applied Materials is well diversified across the semiconductor production value chain, offering tools and services ranging from materials engineering to process control and integration. With a surge in demand for higher computing power and memory from the artificial intelligence space, the company is expected to benefit from cloud service providers’ ambitious capital spending plans to improve AI computational capabilities. China’s focus on developing its own semiconductors could also drive demand for Applied’s products and services, as Chinese chip makers rely on US companies for technology to produce their latest chips. However, the company’s exposure to China could be a double-edged sword with the US tightening restrictions on the export of semiconductor technology to China.
Applied Materials stock currently trades at about $222 per share, with a valuation of about 27x projected FY’24 earnings, slightly higher than historical levels. While trends such as generative AI and cloud computing could drive the stock, the company may face some pressure due to its exposure to China. During Q2 FY’24, Applied’s sales to China accounted for about 43% of total revenue. Despite the positive outlook, Trefis values Applied Materials stock at $202 per share, slightly below the current market price. The company will need to navigate challenges such as US-China trade tensions and technological advancements to sustain its growth in the semiconductor industry.
Overall, Applied Materials has shown strong performance in the semiconductor industry, with its stock experiencing significant gains over the past few years. The company’s diversified offerings across the semiconductor production value chain position it well to benefit from increasing demand for higher computing power and memory from the artificial intelligence space. However, challenges such as the US-China trade tensions and potential regulatory restrictions on semiconductor technology exports could impact the company’s growth prospects. While Trefis values Applied Materials stock slightly below its current market price, the company’s ability to adapt to changing market dynamics will be crucial for its long-term success. Investors will need to closely monitor how Applied Materials navigates these challenges to determine the company’s future performance in the semiconductor industry.
