Applied Materials is a top technology company in the semiconductor industry that manufactures a wide array of products. Its solutions are used widely in the technology sector by companies like Taiwan Semiconductor and Intel.
The company operates in segments like semiconductor systems, applied global services, and display and adjacent markets. Some of its top technologies are epitaxy, ion implant, chemical vapor deposition, atomic layer deposition, and selective processing.
Applied Materials has done well in the past few years, helped by the growth of top industries like artificial intelligence, machine learning, and cloud computing. Its annual revenue has risen from over $23 billion in 2021 to over $27 billion in the last financial year.
Applied Materials has also become a highly profitable company as its annual net income has jumped to $7.1 billion.
Recently, however, the stock has dropped by 33% from its highest level this year, meaning that it is in a deep bear market. This performance happened as concerns about its growth and valuation remained.
AMAT stock was trading at $170 on Tuesday, while the HypeIndex gauge rose 227%.
Positive hype
Applied Materials has generated some positive hype even as its stock has remained under intense pressure.
In a note, analysts at Mizuho noted that Applied Materials dominated its space and that it will likely do well in the longer term.
The company published encouraging results that were largely in line with estimates. Its revenue rose by 5% to $7.05 billion.
Its cash from operations rose to $2.58 billion, which helped it to distribute $1.7 billion to shareholders through dividends and buybacks.
These buybacks have helped to reduce the number of outstanding shares from 913 million in 2020 to 824 million today. Share buybacks help to make a company’s earnings per share more valuable.
Applied Materials is benefiting from major tailwinds like artificial intelligence and cloud computing that are still growing.
Analysts note that the CHIPS Act will be safe in the Donald Trump administration.
They are also bullish on the company, with the average AMAT stock forecast being at $220, up from the current $170.73. The most bullish analysts are from Cowen, Cantor Fitzgerald, Evercore, and Wells Fargo.
The company is relatively undervalued as it trades with a forward price-to-earnings ratio of 18, lower than the S&P 500 average of 21.
Negative hype
Applied Materials issued a soft forward guidance. It expects that its current quarter revenue will be $7.15 billion, plus or minus $400 million. This guidance was weaker than what analysts were expecting.
The company may be affected as the new Trump administration implements a tough-on-China policy, which could include substantial tariffs and product bans.
There is a risk that the company will be affected when the artificial intelligence supercycle starts to fade. Some indicators show that the sector is already slowing.
Applied Materials stock analysis
The weekly chart shows that the AMAT share price has been in a strong downward trend in the past few months. It has dropped below the key support at $171.77, its lowest swing on August 5.
The stock has dropped below the 50-week and 25-week moving averages and the 38.2% Fibonacci Retracement level. Also, the Relative Strength Index (RSI) and the MACD indicators have pointed downwards.
Therefore, the stock will likely continue falling as sellers target the next key support level at $150.
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