Applied Materials, Inc. (NASDAQ: AMAT)
Applied Materials, Inc. is a corporation registered in America that supplies equipment, services and software for the manufacture of semiconductor (integrated circuit) chips for electronics, flat panel displays for computers, smartphones, televisions, and solar products. With the recent release of its third-quarter results that largely beat analyst expectations, the company has seen an increase in mentions by 75% over the last day, prompting investors to wonder what makes the company worth investing in. Currently, shares of Applied Materials trade at $102.31.
Applied Materials is a company that has done very well for itself, featuring high growth despite macroeconomic headwinds, here are some of the reasons you might want to consider taking a position in the company now.
Applied Materials delivered fiscal Q3 revenue of $6.5 billion, an increase of 5% over the prior-year period.
The company's adjusted earnings inched up 2% year-over-year to $1.94 per share, beating analysts’ expectations of $1.78 per share in earnings on $6.27 billion in revenue.
Applied Materials guided for $6.65 billion in revenue this quarter along with adjusted earnings of $2 per share, which are again higher than consensus estimates of $6.55 billion in revenue and $1.94 per share in earnings.
Additionally, its revenue is on track to increase nearly 9% year-over-year at the midpoint of its guidance.
Analysts expect Applied Materials' earnings to increase by nearly 14% per year for the next five years.
Applied Materials also returned nearly all its free cash flow to shareholders in Q3, $225 million paid out as dividends and another $1 billion in share buybacks.
Orders for Applied Materials remained strong in Q3, our backlog increased, overall factory utilization remains high, and customers have added four new factory projects to the long-term road map.
Moreover, the global semiconductor manufacturing equipment market could generate $175 billion in revenue in 2027, compared to $95 billion last year.
The stock is trading at 14.5 times trailing earnings and 12.8 times forward earnings, a discount to its five-year average earnings multiple of 18.4, which means investors have a solid window to buy Applied Materials right now and take advantage of its potential growth.
Although there are lots of very good reasons to be picking Applied Materials up now, no investment is perfect and here is one of the reasons Applied Materials might not be.
There are certain pockets of weakness in the semiconductor market, such as memory chips, where companies are scaling back manufacturing capacity amid falling personal computer and smartphone demand. However, demand for industrial semiconductors and automotive chips remains strong.
Applied Materials suffered a slowdown as a cyclical downturn in smartphone sales caused the memory chip market to stall. Soft sales of TVs also throttled the growth of its display-oriented businesses, and supply chain constraints that hit the industry have aggravated the losses faced by the company.
Simply put, the diversified nature of the semiconductor market allowed Applied Materials to perform well despite headwinds such as a broken supply chain and softness in chip demand from certain niches. By itself, Applied Materials has been doing well financially, and that’s likely to continue. Additionally, with semiconductor capital spending expected to remain solid thanks to the growing demand for chips, Applied Materials looks set for secular long-term growth.
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