Applied Materials (AMAT) stock price has done well this year, helped by the ongoing investments in artificial intelligence. It has risen by about 18.57%, beating some of the top semiconductor companies like Intel, AMD, and Texas Instrument.

Applied Materials is a top chip company

Applied Materials is a leading semiconductor company that is not as well known as popular brand names like Intel, Nvidia, and AMD.

Yet its technology plays an important role in all forms of technology today. It is a leading player in areas like atomic layer deposition, chemical mechanical planarization, rapid thermal processing, and epitaxy. 

These technologies are used by almost all companies in the semiconductor industry, including Intel, Samsung, Micron, and SK Hynix. 

It is also involved in other areas like fab consulting, automation software, technology-enabled services, and supply chain assurance programs through its applied global services.

Additionally, Applied Materials is in the display industry, where it makes products that are used to manufacture LCD, OLED, and other display technologies for TVs, phones, and PCs.

As a result, the breadth of its services has helped to push its revenues up significantly in the past few years. Total revenue rose from over $14.6 billion in 2019 to over $26 billion in the last financial year.

Most of this growth has happened organically as the company has avoided making big acquisitions in the past. Its most recent buyout happened in 2020 when it spent $3.5 billion to buy Kokusai Electric. 

The growth happened as demand for key technologies jumped. The most recent technology is artificial intelligence, which has led to a strong demand for AMAT’s products. 

AMAT is growing steadily

The most recent financial results showed that Applied Materials’ business was still growing. Revenues rose by 5% to $6.78 billion.

Most of this growth – $4.9 billion – came from its semiconductor systems, including its foundry and logic solutions. However, this division’s operating margin dropped slightly to 34.8% during the quarter.

It was followed by its global services business whose revenue and operating margin rose to $1.58 billion and 29.6%, respectively. 

Additionally, its display business generated $251 million in revenues and an operating margin of 6.4%.

The company also boosted its forward guidance for the current quarter and this year. Analysts expect its quarterly revenue to come in at $6.95 billion, a 3.4% increase from the same quarter last year. For the year, revenues are expected to be $27.05 billion. Historically, Applied Materials has often done better than what analysts expect. 

Potential risks ahead

Applied Materials faces some risks ahead. First, there are signs that AI investments will start to slow down in the coming months. A key issue is that companies have boosted their AI spending at a time when demand and use case is not growing as fast, as Goldman Sachs noted.

We saw this situation happen during the Covid-19 pandemic. As semiconductor shortage escalated, companies like Texas Instrument and Analog Devices responded by boosting production only for them to suffer from substantial inventories. 

This view was confirmed by analysts from Mizuho and Citi who warned that the industry may struggle as demand wanes. Atif Malik, a Citi analyst, who downgraded the AMAT stock target by 10% to $217 said:

“We now see modest 2025 wafer fab equipment growth of 5% led by a 10% increase in leading edge logic, memory with domestic China DRAM down and NAND recovery pushed out to second half of 2025.” 

On the positive side, Applied Materials is not as expensive as other chip companies. It has a trailing P/E ratio of 22.7 and a forward figure of 22.54, which are lower than the industry median of 23.6 and 24.18.

Applied Materials stock analysis

AMAT chart by TradingView

On the daily chart, we see that the AMAT share price peaked at $255 in July and then pulled back below $200. It has formed a double-bottom pattern at $172 and is hovering at the 200-day moving average. However, it has dropped below the 50-day moving average and is between the 38.2% and 23.6% Fibonacci Retracement point.

Therefore, at this stage, the stock’s outlook is neutral, with the key points to watch being at $212 and $172. A drop below $172 will invalidate the double-bottom pattern and point to more downside. A move above $212 will point to more gains since it will confirm the double-bottom thesis.

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