Applied Materials (AMAT) sees continued growth momentum in fiscal 2025

Applied Materials, Inc. (NASDAQ: AMAT) has reported better-than-expected fourth-quarter results, but the company’s stock slipped soon after the announcement last week. The semiconductor technology firm had a strong finish to fiscal 2024, reporting record-high Q4 results and marking its fifth consecutive year of growth.

The stock’s post-earning dip showed that the market was expecting a stronger top-line performance, though the number came in slightly above the Street view. Also, the management’s revenue guidance for the first quarter came in below estimates, adding to investors’ concerns. The stock has lost about 10% since the earnings announcement, continuing the downturn that began after withdrawing from the July peak.

In the final three months of fiscal 2024, adjusted earnings increased to $2.32 per share from $2.12 per share in the same period last year. The growth was driven by an increase in Q4 net sales to a record high of $7.05 billion from $6.72 billion in the corresponding period last year. Net income, including special items, was $1.73 billion or $2.09 per share in the October quarter, compared to $2.0 billion or $2.38 per share last year.

Record Revenue

A 6% revenue growth in the core Semiconductor Systems segment, which accounts for more than 70% of the total, contributed significantly to the top-line growth. Meanwhile, there was a 30 basis-point decrease in operating margin during the quarter. The company’s earnings and revenue beat estimates for the tenth consecutive quarter. For the January quarter, it expects sales to be approximately $7.15 billion and adjusted earnings to be around $2.29 per share.

Gary Dickerson, CEO of Applied Materials, said in his post-earnings interaction with analysts, “As we look ahead to 2025 and beyond, we see AI and energy-efficient computing remaining the key driver of innovation in the semiconductor industry. And the industry’s road map becoming increasingly dependent on materials engineering, which grows Applied’s addressable market and provides a tailwind for us to outperform through the investment cycle. I strongly believe that Applied Materials has the right capabilities, strategy, and partnerships at the right time, and this puts us in a great position for the future.”

Strategy

The tech firm is a leader in materials engineering, which uniquely positions it to tap into emerging opportunities in semiconductor technology like AI and energy-efficient computing. The company said its strategic initiatives like the EPIC collaborative R&D platform and the deployment of Net Zero playbook are on track. Currently, research and development programs are focused on ramping up and differentiating the portfolio to better align the business with new industry trends like demand growth for applications supported by AI and machine learning.

Given the growing demand for artificial intelligence chips, AI is expected to be a key growth driver for Applied Materials in the coming years. Considering the company’s solid revenue share in the Chinese market, export restrictions being imposed by the government might hurt its revenue performance. However, continued growth in the domestic market and expansion into other geographical regions should help the firm maintain its momentum.

Extending the recent downturn, AMAT traded down 1% early Monday, after closing the previous session sharply lower. The stock continues to languish below its 52-week average price of $194.89.