Stock Analysis & Ideas

Applied Materials Stock: A Compelling Buy, Says #1-Rated Analyst

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Top-rated Needham analyst Quinn Bolton believes that AMAT can weather a downturn and is a compelling Buy. Here are the positive factors that make him think that.

Semiconductor equipment maker Applied Materials (AMAT) is a market leader in wafer fabrication equipment (WFE), serving the logic/foundry and memory end markets. After the company’s quarterly results last week, Needham analyst Quinn Bolton, ranked #1 out of 8,020 analysts tracked by TipRanks, dove deep into Applied Materials’ earnings report to better understand how things look for the company, going forward. He believes that AMAT stock is a compelling Buy.

Growth Opportunities Overshadowing Headwinds?

During AMAT’s fiscal Q3 (ended July 31) and in the current quarter, the company continued to witness an excess of demand over its ability to supply, causing its backlog to grow. This trend has remained strong despite numerous cancellations from customers. However, supply-chain snags and high supply costs are keeping the company from reaching its full profit-generating potential. To balance the costs, AMAT is taking action regarding pricing, which is encouraging.

Also, management expects quarterly revenues to consistently grow on a sequential basis, starting from the current quarter through Fiscal Q2 2023. This growth is expected to be backed by improvements in supply-chain mobility during the rest of this year.

Bolton is also positive that the transition of WFE manufacturing to next-generation architectures (about 67% foundry/logic mix) is expected to strengthen the demand for WFE more than expected. This will help AMAT gain share in the market, given its leadership position in WFE. “At 13.6x our CY23 EPS, AMAT remains a compelling Buy,” observes the analyst.

Bolton expects the WFE industry to grow by high teens on a percentage basis this year, in which he expects Applied Materials to maintain a 22% market share.

Is AMAT Stock Expected to Rise?

Bolton, however, noted that WFE is expected to hit a plateau in Calendar Year 2023. Factoring this slowdown into his estimates, Bolton noted that the valuation achieved on the basis of the new outlook paves the way for a compelling Buying opportunity for AMAT stock. Needless to say, the analyst reiterated a Buy rating on the stock, despite slashing the price target to $125 from $130 (implying 22.6% upside potential) to reflect near-term challenges.

“Compared to its closest peers, AMAT has a balanced mix of business between the logic/foundry and memory end markets, as well as the broadest product portfolio with a #1 or #2 position in multiple billion dollar categories, which should provide growth, stability, and profitability to the company for multiple years into the future,” opined Bolton.

Wall Street is aligned with Bolton’s bullishness, with a Strong Buy consensus rating based on 17 Buys and four Holds. AMAT’s average price target stands at $131.52, indicating upside potential of 29% from current price levels.

Conclusion: AMAT Stock Can Bounce Back

AMAT’s top position in a compelling industry and healthy financial position provide a strong argument that the company can withstand a prospective downturn and bounce back once the macro environment stabilizes.


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