Applied Materials, Inc. (AMAT) shares are riding high, soaring by 4.63% to $194.75 during Thursday’s trading session. This surge is fueled by the positive ripple effect of Wednesday’s interest rate cut, which has breathed life into growth stocks and rate-sensitive sectors like technology. Wall Street analysts are also predicting more rate cuts following the Federal Open Market Committee’s decision to slash rates by 50 basis points.
This news is particularly significant for Applied Materials, a key player in the semiconductor manufacturing equipment market. The company’s success hinges on the capital spending decisions of chipmakers. Interest rate cuts directly impact the cost of borrowing for these manufacturers, making it more affordable to invest in large-scale projects like building new semiconductor fabrication plants or upgrading existing facilities. This is crucial for Applied Materials, as its revenue stream relies on selling specialized and expensive equipment for these facilities.
With rates lower, companies like Intel, TSMC, and Samsung are more likely to increase their capital expenditures on such projects, giving a direct boost to Applied Materials’ sales.
The semiconductor industry thrives on rapid innovation cycles driven by the constant need to create smaller, faster, and more efficient chips. Lower interest rates reduce the cost of funding research and development for both Applied Materials’ customers and the company itself. This makes it easier for semiconductor companies to invest in advanced equipment needed to produce cutting-edge technologies, further driving demand for Applied’s tools.
Growth companies, especially those focused on long-term innovation like Applied Materials, typically experience stock price increases when interest rates decline. This is because lower rates enhance the present value of their future earnings, making them more attractive to investors. With the cost of borrowing reduced, both tech companies and their customers are more likely to invest in future growth, benefiting suppliers like Applied Materials.
Lower rates also have a broader impact on the economy, stimulating consumer and business spending. As demand for electronics, smartphones, and computers rises, the semiconductor industry needs to ramp up production to meet that demand. This, in turn, could lead to increased demand for semiconductor manufacturing equipment, potentially giving Applied Materials a significant revenue boost.
Traders and investors can gain exposure to the semiconductor industry through the SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust, Series 1 (QQQ).
If you’re interested in participating in the Applied Materials market, either by purchasing shares or attempting to bet against the company, here’s a quick guide:
Buying shares:
You can typically purchase shares through a brokerage account. Many brokerages allow you to buy ‘fractional shares,’ enabling you to own portions of a stock without buying an entire share. For example, some stocks, like Berkshire Hathaway or Amazon.com, can cost thousands of dollars per share. With fractional shares, you can invest smaller amounts. In the case of Applied Materials, which is currently trading at $194.43, $100 would buy you 0.51 shares of stock.
Betting against a company:
This is a more complex process and requires access to an options trading platform or a broker who allows you to ‘go short’ a share of stock by lending you the shares to sell. The process of shorting a stock can be found online. Alternatively, if your broker allows you to trade options, you can either buy a put option or sell a call option at a strike price above the current share price. Both strategies allow you to profit from a decline in the share price.
According to data from Benzinga Pro, AMAT has a 52-week high of $255.89 and a 52-week low of $129.21.
