Categories Analysis, Technology

Thriving on demand boom, Applied Materials keeps investing in innovation

Expects the current investment levels to be sustainable into 2021 and beyond, considering the heavy enterprise spending in IT and communications infrastructure

The impressive financial performance of Applied Materials Inc. (NASDAQ: AMAT) underscores experts’ prediction that the global semiconductor manufacturing equipment industry is on the threshold of a massive expansion, with the COVID-driven digital shift adding to the momentum.

The Santa Clara, California-based tech firm is cashing in on its unique business model — offering fabrication equipment and integrated solutions to semiconductor companies and providing display technologies to manufactures.

Stock Peaks

The company’s stock climbed to a record high a few days before it reported blockbuster fourth-quarter results. A part of the recent gain is attributable to the market rally that followed the election result. Even at the peak of around $70, the valuation looks appropriate. Going by the past performance, a further uptick is in the cards, thanks to the company’s strong fundamentals. Investors wouldn’t want to miss this unique buying opportunity.

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Earnings have beaten estimates regularly, except during the pandemic-related slowdown in the first half, and there is no reason for the trend to reverse. Applied Materials has been consistent in creating shareholder value, supported by its remunerative dividend program. Moreover, the company is uniquely positioned to offer emerging technology solutions to customers.

Focus on New Tech

The ongoing digital transformation, fuelled by the shift to remote work, has increased the significance of semiconductor-based solutions. The promising areas of application range from new-gen displays in AR/VR and electrification of transport to personalized healthcare. Encouraged by the growing enterprise spend in IT and communications infrastructure, the company is investing heavily in new technology and products.

Applied Materials Q4 2020 earnings

“From an overall market standpoint in the calendar year 2020, we see meaningful spend by both the domestic customers as well as the multinational customers. And if I were to think about the weighting of that spend, I would say it favors the domestic market over the multinationals. But both groups of customers are having meaningful spend. I think what you see is a broad-base of investments,” said Applied Materials’ chief financial officer Dan Durn while replying to analysts’ queries at this week’s earnings conference call.

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Meanwhile, demand conditions in the semiconductor market are typically influenced by seasonal factors, which makes Applied Materials’ financial performance prone to fluctuations.

Record Q4

At a record high of $4.69 billion, fourth-quarter revenues were up 25% from last year and above analysts’ prediction. The strong top-line performance translated into a spike in adjusted earnings to $1.25 per share. Revenues grew across all three business segments and in the key geographical regions.

From Applied Materials’ fourth-quarter 2020 earnings call:

“Our backlog is at record levels as our products and technology generate strong customer pool. Our installed base business is becoming larger and more resilient with growth in our data-enabled services and multi-year service agreements.”

Read analysts/management’s comments on Applied Materials’ Q4 Earnings

Shares of Applied Materials traded sharply higher during Friday’s regular session, continuing the uptrend that started soon after the earnings announcement. Currently, they are trading close to the record highs seen last week. The stock has gained 19% for far this year, outperforming the broad market. Its recovery from the COVID-driven sell-off in March has been steady.

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

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