California-based Applied Materials, Inc. (NASDAQ:AMAT) is a pioneer in making equipment and software required for the fabrication of integrated circuits or chips, and manufacturing of organic light-emitting diodes and liquid crystal displays. With solid growth prospects in place, the company has attracted investors’ attention.
Shares of this $76.5-billion company have expanded 86% in the past five years, proving its solid foothold in the semiconductor industry. However, AMAT stock has declined 44.4% so far this year, due to cost inflation and supply-chain woes.
Despite the near-term hurdles, analysts tracked by TipRanks are optimistic about the prospects of AMAT stock, which warrants a Strong Buy consensus rating based on 16 Buys and four Holds.
Hedge funds and retail investors also look optimistic about the stock. While hedge funds purchased 6.1 million shares of AMAT in the last quarter, retail investors increased their exposure to the stock by 3.5% in the last 30 days.
Now, let’s delve deeper into the factors that support the company’s growth story.
Factors Favoring Applied Materials’ Prospects
With the digital transformation of the economy, the use of semiconductor chips and services has increased manifolds in the smartphones, smarthome, automotive, and computing markets.
Revenues of the semiconductor industry are projected to be $1 trillion by 2030. In the United States, semiconductor $ per capita is predicted at 2.5x in 2025, up from 1.5x in 2020.
Solid fundamentals of the industry could be a boon for semiconductor companies like Applied Materials. On a micro level, AMAT would benefit from its geographically diversified business. Notably, the company operates in the U.S., Taiwan, China, Europe, Japan, Korea, Southeast Asia, and multiple other countries.
Applied Materials’ solid product offerings, technological capabilities, and zeal for innovation work in its favor. For the twelve months ended July 31, 2022, the company’s research and development investments totaled $2.7 billion, and its active patents stood at 15,700. Also, the company boosted its technological capabilities with the acquisition of Picosun Oy, a Finland-based semiconductor equipment company.
Moreover, AMAT’s commitment to rewarding its shareholders through dividends and share buybacks raises its investment appeal. In the nine months ended July 31, 2022, the company repurchased shares worth $4,603 million and distributed dividends totaling $650 million.
In August 2022, Applied Materials’ President and CEO, Gary Dickerson, said, “We feel confident in our ability to navigate macroeconomic headwinds and remain very positive about the long-term strength of the semiconductor market and our outsized growth opportunities.”
For the fourth quarter of Fiscal 2022 (ending October 2022), the company forecasts revenues to be within the $6.25-$7.05 billion range, with the mid-point being $6.65 billion. Non-GAAP earnings are expected to be $1.82-$2.18 per share, with $2 per share as the mid-point.
The consensus estimate for fourth-quarter earnings is $2.01 per share, while the same for revenues stands at $6.67 billion.
What Is the Price Target for Applied Materials?
On TipRanks, AMAT’s average price target is $131.80, representing upside potential of 48.31% from the current level. The highest price target is $184, and the lowest is $95.
Robust growth opportunities in the industry and efforts to expand its market presence have strengthened Applied Materials’ prospects for the years ahead. The CHIPS Act of 2022, which promises billions of dollars of investments in the U.S. semiconductor industry, could provide a further boost to AMAT stock.
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