Applied Materials, Inc. (AMAT) stock took a dip on Friday, despite reporting upbeat third-quarter earnings on Thursday. The earnings report came during a busy earnings season, and analysts offered their insights on the company’s performance and future prospects.
Applied Materials exceeded analyst expectations, reporting revenue of $6.78 billion, surpassing the projected $6.67 billion. The company also reported adjusted EPS of $2.12, beating the consensus estimate of $2.02.
Despite these positive results, the stock faced downward pressure. Here’s a breakdown of key analyst takeaways and their perspectives on the company’s performance and future outlook:
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Needham:
Analyst Charles Shi maintained a Buy rating with a $260 price target. He expressed some surprise at the lower-than-expected China revenue, accounting for just 32% of total revenue, significantly lower than the 40% seen by its peers. Shi attributed this to a possible decline in China wafer fab equipment (WFE) in 2025. He projected fourth-quarter revenue of $6.93 billion and EPS of $2.18.*
JP Morgan:
Analyst Harlan Sur maintained an Overweight rating and raised the price target from $240 to $250. Sur anticipates improving WFE trends in the remainder of 2024 and into 2025. He highlighted Applied Materials’ continued year-on-year growth in the services business, driven by an expanding installed base and increasing customer utilization. Sur projected fourth-quarter revenue of $6.93 billion and EPS of $2.18.*
Cantor Fitzgerald:
Analyst C.J. Muse reiterated an Overweight rating with a $250 price target. Muse highlighted several key takeaways from the earnings call, including the decline of domestic China revenue to 32% from 43% in the previous quarter, despite increased silicon revenues driven by strength in leading-edge Foundry/Logic and HBM DRAM. He also noted Applied Materials’ strong gross margins and its commitment to driving further margin expansion. Muse projected fourth-quarter revenue of $6.93 billion and EPS of $2.18.*
Goldman Sachs:
Analyst Toshiya Hari maintained a Buy rating with a price target of $240. While acknowledging potential investor concerns regarding export restrictions, Hari remains optimistic about Applied Materials’ growth prospects into 2025 and beyond, particularly due to its involvement in critical technology inflections like Gate-All-Around transistors and Advanced Packaging. Hari projected fourth-quarter revenue of $7.05 billion and EPS of $2.19.*
KeyBanc:
Analyst Steve Barger reiterated a Sector Weight rating. He highlighted Applied Materials’ focus on AI, emphasizing the critical need for reducing power consumption. He also mentioned the company’s strong growth potential in ICAPS (Industrial, Communications, Automotive, and Pharmaceuticals) driven by factors like renewables, electrification, and edge sensors. Barger projected fourth-quarter revenue of $7.13 billion and EPS of $2.27.Overall, while analysts recognize the challenges posed by factors like weaker China revenue and potential export restrictions, they maintain a positive outlook for Applied Materials’ long-term growth prospects. The company’s focus on advanced technologies like GAA transistors, Backside Power Delivery, and Advanced Packaging positions it for continued success in the semiconductor industry.
