This AMAT Stock Forecast analysis article was written by Zheman Zhong – Financial Analyst at I Know First.

Highlights

• Applied Materials Inc. boasts robust profitability metrics, significantly outperforming industry medians in ROE, ROA, and ROIC.
• Despite a comparative lag in growth rate, AMAT maintains a solid upward revenue trend and a strong market position in semiconductor equipment manufacturing.
• Financial ratios indicate AMAT’s stock may be undervalued, presenting potential investment opportunities based on earnings and cash flow capabilities.
• AMAT’s strategic focus on innovation and customer relationships positions the company for sustained growth within the expanding semiconductor industry.

Overview

Applied Materials, Inc., commonly known as AMAT, stands as a leading entity in the global semiconductor industry. Headquartered in Santa Clara, California, this American corporation specializes in providing a comprehensive range of equipment, services, and software crucial for the manufacturing of semiconductor chips, which are integral to numerous electronic devices. Their expertise extends beyond semiconductors to encompass the production of flat panel displays, commonly used in computers, smartphones, televisions, and even solar products. This versatility in product offerings underscores Applied Materials’ significant role in the tech industry, especially in the Silicon Valley region.

The company boasts a diverse portfolio, maintaining a dominant market share in the deposition sector—a process vital for layering materials on semiconductor wafers. Applied Materials’ prominence is further highlighted by its clientele, which includes some of the world’s largest chipmakers like TSMC, Intel, and Samsung. Their products and technologies range from semiconductors to displays and solar products, including advanced roll-to-roll web coatings and automation software. With a strong presence in key markets such as the United States, South Korea, Taiwan, China, and Japan, Applied Materials has cemented its position as a global leader in semiconductor equipment manufacturing, contributing significantly to the evolution and growth of the technology sector.

AMAT Stock Forecast: Comprehensive Financial Analysis and Market Dynamics of Applied Materials Inc.

Applied Materials Inc. (AMAT) exhibits a strong financial position as shown in the balance sheet breakdown for FY2023. With total assets amounting to $30.7 billion, the company maintains a robust total equity of $16.3 billion, indicating a healthy balance between equity and borrowed funds. A notable aspect is the high proportion of current assets, totaling $19.1 billion, which is 62.31% of the total assets, including a substantial cash reserve of $6.9 billion. This liquidity is a positive sign for the company’s operational flexibility and potential for investment. However, long-term liabilities stand at $7.08 billion, with long-term debt accounting for $5.5 billion, which is a significant but manageable portion of the liabilities given the strong equity position.

In terms of revenue streams, as of the financial breakdown on October 28, 2022, the semiconductor systems segment is the primary revenue generator for AMAT, bringing in $18.88 billion or 72.9% of the total revenue. The company’s gross profit stands at $12.08 billion, which is an impressive 46.5% of the revenue, indicating efficient cost management and a strong market position. The operating income at $7.88 billion, which is 30.2% of the revenue, suggests effective control over operating costs. However, net income after taxes and other expenses amounts to $6.5 billion, which is 25.3% of the revenue, reflecting a solid bottom line. AMAT’s commitment to research and development is also evident, with an R&D expenditure of $2.8 billion, emphasizing the company’s focus on innovation to maintain its competitive edge in the semiconductor industry.

According to Seeking Alpha’s AMAT Growth Grade Metrics,, when juxtaposed with the sector’s performance, present a nuanced picture. The company received a ‘C’ grade for year-over-year (YoY) revenue growth at 2.84%, significantly trailing the sector median of 6.35%. This indicates that AMAT’s revenue growth is not keeping pace with its peers, sitting at 55.33% below the sector median. Furthermore, forward-looking revenue growth projections are graded ‘D+’, with AMAT expected to grow at 3.37%, which is also below the sector median of 8.11%. This marks a stark contrast to AMAT’s five-year average growth rate, which has been substantially higher at 11.78% compared to the sector. However, current forecasts suggest a shift, with AMAT’s expected growth trailing its own five-year average by 75.89%. These figures suggest that while AMAT has historically demonstrated strong growth, it faces challenges ahead that may affect its ability to sustain this momentum relative to the sector.

The historical annual revenue trend for Applied Materials, Inc. reflects a company that has experienced significant fluctuations yet demonstrates a clear upward trajectory over the long term. After what appears to be a peak around 2010, the revenue saw a sharp decline, which could be indicative of cyclical industry patterns or company-specific challenges. However, since that point, there has been a general trend of growth in revenue. This is accompanied by an overall positive growth rate that has seen some volatility but remains on an ascending path, particularly noticeable from around 2016 onwards.

The graph indicates that after the initial tumultuous period, Applied Materials has managed to not only recover but also to sustain and build upon its growth momentum. Despite any short-term declines in growth rate, which are not uncommon in the technology sector, the overall trend suggests resilience and an ability to capitalize on market opportunities. The consistent increase in revenue aligns with the company’s strong performance metrics compared to the industry, reinforcing its status as a formidable player in the semiconductor sector.

For the past six months, the stock price movement of Applied Materials Inc. (AMAT) over the recent months indicates volatility with notable fluctuations. From the trend, it’s observable that the price experienced a sharp decline early on, followed by a series of peaks and troughs, suggestive of the market’s reactive nature to both company-specific news and broader economic conditions. Despite these oscillations, there has been an upward trajectory leading to the current price point, which may reflect investor confidence in the company’s long-term prospects or a response to short-term market conditions. The graph reflects a significant recovery after a dip, culminating in a recent peak. This pattern highlights the dynamic nature of AMAT’s stock value and suggests a degree of investor responsiveness to the company’s performance and potential growth, despite the slower revenue growth indicated in the company’s growth grade.

AMAT Stock Forecast: AMAT’s Financial Edge Over Industry Averages

Applied Materials Inc. (AMAT) showcases a commanding performance across key financial metrics when compared with the semiconductor industry median. The company’s Return on Assets (ROA) stands at an impressive 23.66%, markedly higher than the industry median of 2.93%, illustrating efficient asset utilization. Even more striking is AMAT’s Return on Equity (ROE) at 48.16%, which far exceeds the industry median of 5.2%, signaling that the company is generating substantial returns on shareholders’ investments. With a Return on Invested Capital (ROIC) of 33.39%, AMAT demonstrates its prowess in deploying capital effectively, outperforming 99.99% of its industry peers.

Furthermore, AMAT’s operating margin is reported at 28.87%, suggesting operational efficiency and profitability control much higher than the industry’s 6.19% median. The net margin follows suit, standing at 25.86%, indicating that AMAT converts a significant portion of revenue into profit, surpassing 89.41% of the industry. Lastly, the gross margin percent is an impressive 46.7%, indicating a strong pricing strategy and cost control mechanisms, outperforming 75.91% of the industry. These metrics collectively underscore AMAT’s exceptional financial health and its standout performance in the semiconductors industry.

Steady Growth and Positive Outlook: Applied Materials Inc.’s Fiscal Year 2023 Financials

Applied Materials Inc. concluded fiscal year 2023 with robust financial outcomes, as evidenced by its reported quarterly revenue of $6.72 billion, remaining flat year-over-year, and annual revenue of $26.52 billion, marking a 3% rise from the previous year. The company’s profitability metrics improved, with a 9% increase in annual GAAP EPS to $8.11 and a 5% increase in non-GAAP EPS to $8.05. Notably, the company achieved a gross margin of 46.7% and an operating margin of 28.9%, demonstrating strong profitability in its operations. Additionally, the company has enhanced shareholder returns, distributing $3.16 billion through share repurchases and dividends.

Moving forward, the company’s president and CEO Gary Dickerson expressed confidence in the firm’s growth trajectory, emphasizing its outperformance in the wafer fabrication equipment market for the fifth consecutive year. The company’s broad product portfolio and strategic customer relationships are expected to drive profitable growth, capitalizing on the expanding semiconductor industry. For the first quarter of fiscal 2024, Applied Materials projects net sales to be approximately $6.47 billion and anticipates non-GAAP adjusted diluted EPS to be in the range of $1.72 to $2.08, indicating cautious optimism for continued financial health in the near term​.

AMAT Stock Forecast: A Comparative Analysis with Industry Peers

The valuation metrics of Applied Materials Inc. (AMAT Stock) compared with its peers provide insightful contrasts within the semiconductor industry. AMAT’s Price-to-Earnings (P/E) ratio of 18.32 is significantly lower than the peer average of 35.80, indicating a more attractive valuation in terms of earnings. This trend extends across other metrics, with AMAT Stock showing a lower Price-to-Book (P/B) ratio compared to the high of 24.76 exhibited by KLA Corporation (KLAC), suggesting a more modest valuation of its assets.

AMAT’s Price-to-Sales (P/S) and Price-to-Cash Flow (P/C) ratios are also below the group average, which could imply that its sales and cash flow are not overestimated in the stock price. Interestingly, when AMAT’s valuation is recalculated using the average ratios of its peers, the hypothetical value shows a significant increase across all metrics, potentially highlighting a market undervaluation of AMAT’s actual performance and future prospects. This discrepancy may offer an attractive entry point for investors, assuming that the market corrects these valuations over time to reflect the company’s robust fundamentals and market position.

Based on the provided financial ratios, the projection of AMAT stock price is between $82.59 and $138.51. Setting a target at $110.3(Average of the AMAT Values Based On Peers’ Ratios), it is significantly lower than its recent price of $148.59 as of November 17th, 2023. This suggests that, from a valuation perspective, AMAT’s stock may currently be trading at a premium relative to its earnings and financial fundamentals. Investors should consider the potential implications of this valuation gap. While the market may be pricing in optimism and growth prospects for AMAT, it’s essential to weigh this against the comparative valuation provided by industry peers.

Conclusion

In conclusion, Applied Materials Inc. (AMAT) displays strong financial health and outperforms industry medians in key profitability metrics, despite lagging behind in growth rate. Its strategic focus on innovation and sustained growth in the semiconductor industry, along with a solid financial foundation, positions AMAT favorably for the future. However, its current stock valuation, when compared with industry peers, suggests a potential overvaluation, warranting cautious consideration by investors. While AMAT’s fundamentals are robust, the comparative analysis indicates the need for a balanced assessment of its market positioning and future growth prospects.

It is worth paying attention that the stock-picking AI of I Know First has a high long signal on the one-year market trend forecasts. The light green for the short-term forecasts is mildly bullish, while the darker green is a strong bullish signal for the one-year forecast.

Past Success with AMAT Stock Forecast

I Know First has been bullish on the AMAT stock forecast in the past. On November 17^th, 2022 the I Know First algorithm issued a forecast for AMAT stock price and recommended AMAT as one of the best Tech Giant stocks to buy. The AI-driven AMAT stock prediction was successful on a 1-year time horizon resulting in more than 45.57%.

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Please note-for trading decisions use the most recent forecast.