Applied Materials Earnings: We Like the Firm’s Growth Opportunity

Key Morningstar Metrics for Applied Materials

• Fair Value Estimate: $193.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Applied Materials’ Earnings

After raising our long-term growth forecast, we lifted our fair value estimate for Applied Materials AMAT to $193 per share from $168. Applied’s fiscal third-quarter results and fiscal fourth-quarter guidance fit with our short-term expectations. We see the firm as well-positioned to benefit from rising chip complexity, including investment in advanced AI chips and high-bandwidth memory in the medium term.

In the longer term, we see the firm’s growth opportunity as diverse, with demand for cutting-edge AI applications and memory complemented by lagging-edge chip demand for automotive and industrial applications. Applied’s broad portfolio allows it to enjoy these myriad demand drivers and contributes to our wide economic moat rating. At our updated valuation, we see shares as fairly valued.

July-quarter sales rose 5% year over year and 2% sequentially to $6.78 billion. Growth was driven by ramping investment in cutting-edge digital chips and HBM, supported by AI investment. We expect these investments to continue into the medium term, which supports our updated growth forecast for Applied. Still, we see lagging-edge chip demand rising, maintaining a diversified revenue mix for the firm. We also like Applied’s steady services business growth, which pads equipment sales and offsets some cyclicality on the top line.

Applied’s October-quarter guidance was positive and fit our model. At the midpoint, sales of $6.93 billion imply 3% year-over-year growth and 2% sequential growth. We forecast an acceleration to double-digit growth in fiscal 2025, driven by broad-based growth across cutting-edge logic capacity, lagging-edge automotive and industrial capacity, and rebounding memory markets. In the longer term, we believe Applied can maintain high-single-digit growth in line with the broader semiconductor industry.