Applied Materials, Inc. (NASDAQ: AMAT), a leading supplier of semiconductor fabrication equipment, has successfully navigated through market challenges, aided by its diversified customer base and continued innovation. The tech firm looks well-positioned to benefit from the steady rise in demand as enterprises ramp up chip technologies critical to AI and IoT. The company’s second-quarter earnings report is scheduled for release this week.
Applied Materials’ stock hit a record high a month ago and has maintained positive momentum ahead of the earnings, gaining about 30% since the beginning of the year. AMAT has outperformed the market consistently in the recent past and the uptrend is expected to continue for the rest of the fiscal year. While the valuation doesn’t look favorable, the company’s strong fundamentals make the stock attractive.
Estimates
Applied Materials is preparing to report second-quarter 2024 results on May 16, 2024, at 4:00 p.m. ET. Market watchers estimate that April-quarter earnings increased to $1.99 per share from $1.78 per share in the same period of 2023. The company’s management is looking for adjusted earnings per share in the range of $1.79 to $2.15, with the mid-point being $1.97 per share. Analysts’ consensus revenue estimate is $6.54 billion, which is broadly in line with the $6.50 billion (+/-$400Mil) sales the company predicts.
Being a market leader, the company can benefit significantly from tailwinds like the strong demand for high-bandwidth memory and AI-enabled chips, a secular trend that would drive long-term growth. Customers value Applied Materials’ products as they help improve the speed and quality of computer chips while enhancing cost efficiency. Going forward, the company could play a pivotal role in catalyzing the AI revolution the semiconductor market is currently witnessing. Meanwhile, the company’s high exposure to China is a cause for worry due to trade restrictions and political tensions.
Mixed Q1
In the first three months of 2024, net sales remained broadly unchanged at $6.71 billion. There was a 5% decrease in sales in the core Semiconductor Systems division, which was offset by higher sales in the Applied Global Services and Display and Adjacent Markets segments. The company generated $2.33 million in operating cash flow during the quarter. Both the top line and profit beat estimates in Q1, as they did in each of the trailing six quarters.
“The breadth of our technology capabilities, combined with our deep customer relationships, allows us to see inflections early and accelerate key technology innovations that are critical to scaling AI, IoT, Electric Vehicles, and Renewable Energy. We have reshaped and expanded our portfolio of solutions, that enable next-generation transistors, new interconnect schemes, including backside power delivery, high-performance DRAM, including high bandwidth memory, and specialty applications in the ICAPS market,” Applied Materials’ CEO Gary Dickerson said during a recent interaction with analysts.
Shares of Applied Materials are trading sharply above their 12-month average. On Monday, the stock opened at $208.47 and traded lower in the afternoon.