Applied Materials: Strong Q3 Results Spark Mixed Analyst Reactions

Time To Get Out Of Applied Materials (NASDAQ:AMAT)

Looking for more investing ideas like this one? Get them exclusively at Timely Trader. Learn More " The semiconductor stocks as a group have been hammered in the past few weeks. Even leaders like NVIDIA (NVDA) lost massive portions of their value into the early-August low, but the group has surged once again since then. Whether this is a bounce or the start of a new, sustained rally remains to be seen. In this article, we'll take a fresh look at Applied Materials (NASDAQ:AMAT), which reported third quarter earnings on the 15. The last time I covered AMAT I came to the conclusion that second quarter earnings weren't good enough; I have a similar view of third quarter earnings. Let's dig in. We'll start with the chart as we always do, and in AMAT's case, I think we've got a very tough level overhead for the bulls to negotiate, if indeed they can. We can see very clearly on the daily chart that level is $214. That was the high from March (twice), as well as April. In addition, after it was broken, it was support in June, then again in July. Now that it's been broken, it's been resistance that has failed twice in recent weeks. Point being, it's really difficult to get bullish on AMAT under that level because it looks to me like $214 is a brick wall right now. The RSI is also struggling to clear 60, which I've marked in the bottom panel with a blue line. That's a level that is hard to crest during sideways or bearish phases, and AMAT hasn't seen a value ahead of that since early July. The RSI suggests the bears are in control until further notice. AMAT has underperformed its peers (top panel) by a massive amount in the past several months. And in the bottom panel we can see since June the semis as a group have underperformed the S&P 500. While a lot of that has been erased with the bounce we've seen, the fact is AMAT is a terrible performer in a weak group. Finally, seasonality is very unkind to AMAT for the next six weeks or so. September is the worst month for AMAT of the year, so if I put that with the relative strength and the price chart itself, I see the odds of $214 holding as extremely high. If you're a buyer of AMAT, it means I think you can wait it out and get a potentially much better price. I mentioned I had about the same reaction to Q3 results as I did for Q2, and it's one of results being fine, but not enough to support the valuation. Adjusted earnings-per-share came to $2.12, which was a dime ahead of estimates. Revenue was up 5.4% year-over-year to $6.78 billion, and crested expectations by $110 million. That's all fine, and guidance was basically in-line for Q4. Again, fine, but not exactly spectacular. Management said the race for AI leadership is fueling demand for the company's products and services, and I don't doubt that. But at the same time, if you look at the growth rates for other names in the semi space, AMAT's growth rates look more like a consumer staples stock; it should be valued as such. The core semiconductor systems segment saw $4.924 billion, a gain of $248 million from last year's Q3. Guidance for Q4 was for $2.18 in EPS, three cents ahead of estimates from analysts. Revenue is expected in-line at $6.93 billion. Here's what estimates look like heading into the last quarter of the year. Sales growth is quite muted this year, but is expected to pick up in '25/'26. Importantly, analysts expect EPS to outgrow revenue for the foreseeable future. That implies strong margins and/or strong buyback activity to make that happen. Let's dig into Q3 results and see if AMAT's on the right track to accomplish that. We can see operating income rose more quickly than revenue, and that's because gross margins rose 100bps year-over-year to 47.4% of revenue. Part of that was offset by higher expenses, which rose 8%, eroding half that gross margin gain. This is a key variable going forward. Operating margins in the company's largest segment have been flat for several quarters, so moving the needle is hard. AGS is seeing sustainably higher margins but its contribution to revenue is fairly small, so when results are consolidated, it isn't making a massive difference. DAM is negligible in terms of revenue and margins. Point being, unless AMAT has a wildcard up its sleeve for semiconductor systems to see meaningful margin gain, it's likely to be more of the same going forward. Guidance for Q4 suggests flat gross margins to Q3, but perhaps slightly higher operating margins as expense growth is expected to be lower than revenue growth. That's assuming the company hits $6.93 billion, but note the range of revenue guidance is +/- $400M, which is a big number. We shall see but my point is that it doesn't look like margins are going to be driving earnings meaningfully anytime soon. AMAT does a nice job of distributing cash and we can see it's been pretty reliably spending $700M to $800M per quarter on buybacks. That's a ~2% tailwind to EPS annually as the float is reduced. So long as that continues, we should see EPS growth outperform revenue growth. FCF has been well ahead of total distributions so there's no concern over sustainability there. This is particularly true when considering AMAT's balance sheet, which looks quite robust. The company has $12 billion in cash and equivalents, with net debt of about -$5.8 billion. Absolutely no balance sheet concerns here and it gives AMAT flexibility to invest in growth, acquisitions, buybacks, or whatever else it wants. The final piece to the puzzle here is the valuation, and for me, it's the nail in the coffin on the bull case for AMAT. To be clear, AMAT could just blow through resistance and all the fundamental stuff we've gone through to new highs. I just don't think that's going to happen, and I believe the odds are we'll see lower prices before we see higher prices. For that reason, I'm moving the stock from hold to sell. The stock is trading for ~23X times earnings today, which is 5 handles above its three-year average, although it is near the low valuation for 2024 thus far. With AMAT growing at pedestrian rates recently but also for the foreseeable future, I can't see paying 23X earnings. Valuations are always in the eye of the beholder, but for me, there are better values out there. I'd be interested at 18X to 20X times earnings, but at 23X the risk is simply too high. Wrapping up, Q3 results were fine. Q4 guidance is fine. I'm still concerned about long-term margins being able to support EPS growth as revenue growth and the buyback are both good for only modest gains in earnings. The price chart and seasonality suggest we'll see $190 before we see $220, so for that reason, I'm putting a sell rating on AMAT. I am NOT suggesting you run out and short; I'm simply saying there are better places for your money right now.

Applied Materials Posts Strong Q3 Results

Applied Materials reported a strong third quarter, surpassing revenue and earnings expectations while showing growth in key segments. Applied Materials (AMAT -1.85%), a leader in semiconductor manufacturing equipment and services, announced its financial results for the third quarter of fiscal 2024 on Aug. 15. The company reported revenue of $6.78 billion, surpassing the midpoint of management's guidance of $6.65 billion by 1.9%. Non-GAAP diluted earnings per share (EPS) came in at $2.12, compared to the expected range of $1.83 to $2.19. Overall, the quarter was marked by revenue growth, margin improvement, and strong performance in key business segments. Source: SEC filings. Expectations based on management's guidance, as provided in 2024-05-16 earnings report. Understanding Applied Materials Applied Materials is a leading provider of equipment, services, and software for the manufacturing of semiconductor chips. Its principal segments include Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. The company's recent focus has been on leveraging its technological leadership in semiconductor manufacturing equipment and expanding its global services and support capabilities. Quarterly Highlights During the third quarter of fiscal 2024, Applied Materials saw strong financial performance across several metrics. Revenue grew by 5.5% year-over-year to $6.78 billion, supported by rising semiconductor system sales, which reached $4.92 billion, up 5.3% from the previous year. The Applied Global Services segment also posted solid figures, with revenue growing by 7.9% year-over-year to $1.58 billion. The company's gross margin improved year-over-year, with GAAP gross margin at 47.3%, up 1.0 point from the previous year, and non-GAAP gross margin at 47.4%, also up 1.0 point. Operating margins showed a similar trend, with GAAP operating margin at 28.7% and non-GAAP operating margin at 28.8%. However, not all metrics showed positive trends. The Display and Adjacent Markets segment experienced a decline in operating margin, falling to 6.4% from 13.6% in the year-ago period. This indicates potential competitive or cost pressures in the display market. On the cash front, the company generated $2.39 billion in cash from operations and returned $1.19 billion to shareholders through share repurchases and dividends. This indicates a strong cash generation capacity and commitment to shareholder returns. Strategic Focus Areas The company's key focus areas include maintaining its technological leadership in semiconductor manufacturing equipment, expanding its global services and customer support, and leveraging its strong market position in display and adjacent markets. Applied Materials continues to invest heavily in research and development (R&D) to drive innovations in areas such as gate-all-around (GAA) transistors and high-bandwidth memory, which are crucial for future technological advancements. Applied Materials also boasts a robust intellectual property portfolio with over 19,600 active patents, underscoring its strong capabilities in innovation and technological leadership. Looking Ahead Looking forward, Applied Materials has provided guidance for the fourth quarter of fiscal 2024, with revenue expected to be approximately $6.93 billion, plus or minus $400 million. Non-GAAP diluted earnings are projected to be between $2.00 and $2.36 per share. Management remains optimistic about the company's prospects, driven by advances in AI and continued demand for semiconductor manufacturing equipment. However, the company must manage potential risks related to customer concentration and geopolitical tensions, particularly with significant revenue exposure to China. Investors should keep an eye on how the company navigates these challenges and leverages its technological innovations to maintain growth in the upcoming quarters.

Applied Materials Positioned For 2025 Growth Despite Soft China Revenue And Light Q4 Guidance, Analysts Say - Applied Mat (NASDAQ:AMAT)

Analysts highlight China revenue drop and light Q4 guidance despite strong gross margins. Applied Materials, Inc AMAT stock declined on Friday after the company reported upbeat third-quarter earnings on Thursday. The results came amid an exciting earnings season. Here are some key analyst takeaways. Applied Materials reported third-quarter revenue of $6.78 billion, beating the analyst consensus estimate of $6.67 billion. The company reported adjusted EPS of $2.12, beating analyst consensus estimates of 2.02. Also Read: Applied Materials Stock Drops After Chips Act Denies Funding Needham analyst Charles Shi reiterated Applied Materials with a Buy and a $260 price target. JP Morgan analyst Harlan Sur maintained Applied Materials with an Overweight and raised the price target from $240 to $250. Cantor Fitzgerald analyst C J Muse reiterated Applied Materials with an Overweight and a $250 price target. Goldman Sachs analyst Toshiya Hari maintained Applied Materials with a Buy and a price target of $240. KeyBanc analyst Steve Barger reiterated Applied Materials with a Sector Weight. Needham: Shi flagged the fourth-quarter revenue guidance as light as most peers have guided to 5%-10% sequential growth through this earnings cycle. The analyst was surprised by the smaller China revenue in the third quarter, which accounts for only 32% of the total revenue, well below the ~40% China contribution seen by peers. Much softer China revenue likely explains Applied Materials' relatively light fourth-quarter guidance but should improve the setup for the stock if China wafer fab equipment (WFE) does decline into 2025, Shi said. Shi projected fourth-quarter revenue of $6.93 billion and EPS of $2.18. JP Morgan: Overall, Sur expects improving WFE trends as it moves through the remainder of 2024 and into 2025. As per the analyst, the team continued to drive year-on-year growth in their services business, primarily driven by growth in the installed base and increasing customer utilization. He noted Applied Materials is well-positioned to benefit from multiple upcoming technology inflections that should push continued outperformance versus WFE over the next several years. Sur projected fourth-quarter revenue of $6.93 billion and EPS of $2.18. Cantor Fitzgerald: Muse flagged a few critical takeaways from the call overnight. First, domestic China fell to 32% of revenues from 43% in the prior quarter, yet Silicon revenues increased, led by strength in leading-edge Foundry or Logic and HBM DRAM. Second, actual and guided gross margins were still very high at 47.4%, with management reiterating its forecast of 48% in the calendar year 2025. Muse noted Applied Materials' work in driving higher margins is unlikely to be fully appreciated by investors today. And third, despite the Intel Corp INTC capex cut, there are no changes to the company's outlook for Gate-All-Around (GAA) revenues to double into fiscal 2025 to $5.0 billion. Muse said that Applied Materials remains a top pick, considering expectations for resuming WFE share gains into calendar year 2025 led by leadership in GAA and Advanced Packaging (particularly HBM). Muse projected fourth-quarter revenue of $6.93 billion and EPS of $2.18. Goldman Sachs: While investor concerns related to potential incremental export restrictions could impact valuation multiples across the sector, Hari remains constructive on Applied Materials' growth prospects into calendar year 2025 and beyond, particularly given its exposure to critical technology inflections, including Gate-All-Around transistors, Backside Power Delivery, and Advanced Packaging. Furthermore, the analyst envisioned the company's broad product and technology portfolio driving higher value capture over time, healthy operating expenditure leverage, and substantial operating margin expansion. Hari projected fourth-quarter revenue of $7.05 billion and EPS of $2.19. KeyBanc: On the call, Applied Materials reiterated that its strength in materials science and engineering should enable leading-edge technology transitions in advanced logic, GAA, and current and future memory technologies, Barger noted. AI was a dominant theme on the call. Applied Materials noted that the critical theme of reducing power consumption will likely drive the performance per watt over the next 15 years, the analyst flagged. With respect to ICAPS, Applied Materials noted that the segment could post mid-single-digit-high-single-digit growth in coming years, driven by renewables, electrification, and edge sensors, among other things. Revenue in China was up 24% year over year but fell to 32% as a percent of the mix, Barger highlighted. Looking forward, Applied Materials expects to see mid-single-digit to high-single-digit growth in China over time, the analyst noted. Barger projected fourth-quarter revenue of $7.13 billion and EPS of $2.27. Price Action: AMAT is down 1.88% at $207.85 at last check Friday. Photo: Shutterstock Market News and Data brought to you by Benzinga APIs

Evercore ISI stays positive on Applied Materials stock By Investing.com

On Friday, Evercore ISI maintained a positive stance on Applied Materials (NASDAQ:AMAT), keeping an Outperform rating and a price target of $260.00. The firm's outlook followed the company's recent performance, where it reported an October quarter revenue guidance of $6.93 billion, which aligns with market expectations and indicates a 2.2% quarter-over-quarter and 3% year-over-year growth. The gross margin (GM) forecast was slightly more optimistic at 47.4%, which is 40 basis points higher than the consensus. Operational expenses are projected to be $1.275 billion, slightly above the consensus by 20 basis points. Applied Materials also reported an earnings per share (EPS) of $2.18, surpassing the consensus by $0.04 or 1.7%. This financial performance is seen as a solid beat by the firm. The analyst highlighted the company's valuation, noting that Applied Materials is trading at a next twelve months (NTM) price-to-earnings (P/E) ratio of 22 times. This valuation represents a 9% premium compared to the S&P 500 index, which is viewed favorably when compared to peers. For instance, competitors like LRCX and KLAC are trading at a 16% and 33% premium to the S&P 500, respectively. The analyst expressed a belief that Applied Materials' valuation is attractive and anticipates the company's multiple will expand as the industry's positive fundamentals are recognized by investors. The commentary from Evercore ISI indicates a confidence in Applied Materials' market position and its potential for growth amidst industry conditions. The firm's analysis suggests that the company's financials are strong and that its stock may be undervalued relative to its peers. The maintained Outperform rating and price target reflect a continued endorsement of Applied Materials' prospects in the semiconductor equipment industry. In other recent news, Applied Materials has been the subject of various updates and projections. The company has reported strong Q4 revenue projections, exceeding Wall Street expectations, largely due to a surge in demand for AI-powered chip-making tools. The expected revenue stands at approximately $6.93 billion, with an adjusted profit per share projected between $2.00 and $2.36. Citi has maintained its Buy rating on Applied Materials, keeping the price target at $240. The firm's confidence in the company stems from a strong quarter report and promising guidance for October-quarter earnings per share. Citi also highlighted the robust demand driven by AI and expectations of maintaining revenue from gate-all-around technology. On a similar note, Cantor Fitzgerald adjusted the price target for Applied Materials shares to $250 from a previous $290, while maintaining the Overweight rating. The adjustment comes amid expectations of a modest beat and raise in the company's upcoming report. Applied Materials has also introduced a series of materials engineering innovations aimed at improving the performance-per-watt of computer systems. These include the use of ruthenium in high-volume production to enhance copper chip wiring and a new low-k dielectric material that strengthens logic and DRAM chips for 3D stacking. Lastly, the company has come under scrutiny from the U.S. Department of Commerce, which is seeking additional information about the company's shipments to China. Despite this, Applied Materials announced a 25% increase in its quarterly cash dividend, raising it from $0.32 to $0.40 per share. As Applied Materials (NASDAQ:AMAT) continues to exhibit robust financial health, recent data from InvestingPro aligns with the positive outlook presented by Evercore ISI. The company's market capitalization stands at a formidable $175.39 billion, underpinning its significant presence in the semiconductor industry. The P/E ratio, a key indicator of market expectations of a company's earnings growth, is currently at 24.15, which suggests investors are willing to pay a premium for the company's earnings potential. This is further supported by the 18 analysts who have revised their earnings upwards for the upcoming period, indicating a bullish sentiment on the company's financial prospects. Applied Materials has also demonstrated a commitment to shareholder returns, having raised its dividend for 6 consecutive years, and maintaining dividend payments for 20 consecutive years. This track record of consistent dividend growth is a testament to the company's financial stability and disciplined capital allocation strategy. With a dividend yield of 0.76%, investors can find a balance between growth and income in AMAT's stock. The company's stock has experienced significant return over the last week, with a 10.8% price total return. This short-term performance is an important consideration for investors looking for momentum in their investments. For those who are interested in exploring further, there are over 15 additional InvestingPro Tips available at InvestingPro, offering deeper insights that could guide investment decisions in the semiconductor sector.

These Analysts Increase Their Forecasts On Applied Materials Following Strong Earnings - Applied Mat (NASDAQ:AMAT)

Applied Materials, Inc. AMAT reported better-than-expected results for its third quarter on Thursday. Applied Materials reported third-quarter revenue of $6.78 billion, beating the consensus estimate of $6.673 billion. The chip equipment company reported adjusted earnings of $2.12 per share, beating analyst estimates of 2.02 per share. "Applied Materials is delivering strong results in 2024 with record revenues in our fiscal third quarter and earnings towards the high end of our guided range," said Gary Dickerson, president and CEO of Applied Materials. "The race for AI leadership is fueling demand for our unique and connected portfolio of products and services, positioning Applied to outperform our markets over the longer term." The company said it anticipates fourth-quarter revenue of $6.53 billion, plus or minus $400 million, versus estimates of $6.91 billion. The company expects fourth-quarter adjusted earnings to be between $2 and $2.36 per share, versus estimates of $2.14 per share Applied Materials shares gained 5.1% to close at $211.83 on Thursday. These analysts made changes to their price targets on Applied Materials following earnings announcement. Morgan Stanley analyst Joseph Moore maintained the stock with an Equal-Weight and raised the price target from $223 to $224. JP Morgan analyst Harlan Sur maintained the stock with an Overweight and raised the price target from $240 to $250. Needham analyst Charles Shi reiterated Applied Materials with a Buy and maintained a $260 price target. Considering buying AMAT stock? Here's what analysts think: Read Next: Jim Cramer Recommends Buying Clorox: 'CEO Has Done Remarkable Job' Market News and Data brought to you by Benzinga APIs

KeyBanc maintains Sector Weight on Applied Materials shares By Investing.com

On Friday, KeyBanc Capital Markets continued to hold a Sector Weight rating on shares of Applied Materials (NASDAQ:AMAT), a leading provider of materials engineering solutions. The firm's analysis followed Applied Materials' third-quarter earnings and fourth-quarter guidance, which were in line with industry trends observed among the company's front-end peers. In their assessment, KeyBanc noted Applied Materials' emphasis on its strength in materials science and engineering, which is expected to support technological advancements in various sectors including advanced logic, gate-all-around (GAA) transistors, and memory technologies. The company highlighted artificial intelligence (AI) as a key topic during its earnings call, pointing out the industry's shifting focus towards reducing power consumption over increasing operations per second. This shift is anticipated to yield a significant 10,000-fold enhancement in performance per watt in the next 15 years. Applied Materials also discussed its Integrated Circuit, Advanced Packaging (NYSE:PKG), Sensors, and Electromechanical (ICAPS) segment, predicting mid-single to high-single digit growth in the coming years. This growth is projected to be driven by factors such as renewable energy, electrification, and edge sensors. Although specific projections for 2025 were not discussed, the company's revenue from China increased by 24% year-over-year, even as it represented a smaller percentage of the total revenue mix, dropping to 32%. Applied Materials foresees continued mid to high single-digit growth in China over time. Despite these insights, KeyBanc anticipates maintaining its current estimates and does not foresee significant shifts in the consensus view. While there might be potential for revenue to surpass consensus estimates, Applied Materials has also adjusted its 2025 tax rate guidance to 14%, which could mitigate some of the possible earnings per share upside. Consequently, KeyBanc has decided to uphold its Sector Weight rating on the company's stock. In other recent news, Applied Materials, a renowned name in the semiconductor industry, has been making significant strides in its financial performance. The company has reported record revenues for the third quarter of fiscal year 2024, with a 5% year-over-year increase, reaching a substantial $6.78 billion. The growth was observed across all three of its business segments, with Semiconductor Systems seeing a 5% YoY increase. TD Cowen, a well-regarded investment firm, has maintained its Buy rating on Applied Materials, reflecting its confidence in the company's continued growth and profitability. The firm's assessment follows a shift in Applied Materials' revenue exposure in China, which normalized to 32% in the July quarter, a change driven by a decrease in spending on China DRAM, while demand for ICAPS remained robust. Applied Materials projects a compound annual growth rate (CAGR) for its services segment (AGS) in the low double digits, and targets a gross margin (GM) of over 48% by the end of fiscal year 2025. These targets, along with the company's strategic investments, are seen as positive indicators of the firm's future performance. Looking ahead, Applied Materials anticipates Q4 revenue of $6.93 billion and non-GAAP EPS of $2.18, both up 3% YoY at the midpoint. The company also plans to capture more than 50% of new device ramps spending in AI and energy-efficient computing.

Goldman Sachs bullish on Applied Materials stock after earnings beat By Investing.com

On Friday, Goldman Sachs (NYSE:GS) reiterated its Buy rating on Applied Materials (NASDAQ:AMAT) stock, with a price target set at $240.00. The firm's assessment follows Applied Materials' financial results for the third fiscal quarter ending in July, which surpassed expectations. The company also projected growth for the fourth fiscal quarter ending in October, attributing the positive outlook to increased demand in leading-edge Logic/Foundry and High-Bandwidth Memory sectors. This growth is expected despite a predicted revenue normalization in China. The firm acknowledged that concerns over potential new export restrictions could impact valuation multiples in the semiconductor sector. However, Goldman Sachs expressed a positive stance on Applied Materials' growth trajectory through 2025 and beyond. This optimism is based on the company's involvement in critical technology advancements such as Gate-All-Around transistors, Backside Power Delivery, and Advanced Packaging (NYSE:PKG). Goldman Sachs anticipates that Applied Materials' extensive product and technology portfolio will enable the company to capture more value, reflected in higher gross margins over time. The firm also foresees robust operating expense leverage and significant operating margin expansion for Applied Materials. In summary, Goldman Sachs' endorsement of Applied Materials remains firm, with expectations of the company's continued growth and financial strength in the semiconductor industry, maintaining the $240 price target for the stock. In other recent news, Applied Materials reported strong third fiscal quarter results, with revenues of $6.778 billion and earnings per share (EPS) of $2.12, surpassing the Street's expectations. Bernstein raised its price target for the company to $250, maintaining an Outperform rating. The company's fourth fiscal quarter guidance is roughly in line with expectations, projecting revenues of approximately $6.93 billion and an EPS of $2.18. Deutsche Bank (ETR:DBKGn) adjusted its price target for Applied Materials to $230, acknowledging the company's robust financial results and modest increase in revenue and gross margin estimates. Evercore ISI kept an Outperform rating with a price target of $260, expressing confidence in the company's financial performance and potential for growth. Citi maintained its Buy rating on Applied Materials, with a price target of $240, highlighting the company's robust demand driven by AI and expectations of maintaining revenue from gate-all-around technology. Cantor Fitzgerald adjusted the price target for Applied Materials shares to $250 from a previous $290, maintaining the Overweight rating. Applied Materials also introduced a series of materials engineering innovations aimed at improving the performance-per-watt of computer systems and announced a 25% increase in its quarterly cash dividend, raising it from $0.32 to $0.40 per share. These are the recent developments involving Applied Materials.