On Tuesday, Citi reaffirmed its Buy rating on Applied Materials (NASDAQ:AMAT) with a consistent price target of $217.00. Ahead of the company's earnings report expected after the market closes on Thursday, November 14, the firm anticipates that Applied Materials' October quarter sales and EPS will align with the Street's expectations and that the January quarter could modestly surpass them.
Investors are keenly awaiting the company's 2025 Wafer Fabrication Equipment (WFE) outlook, potential growth from gate-all-around (GAA) transistors and advanced packaging technologies, and particularly the demand forecast in China considering normalized spending, the possibility of new restrictions, and the implications of the new U.S. administration.
Despite peers such as ASML (AS:ASML), Lam Research (NASDAQ:LRCX), KLA Corporation (NASDAQ:KLAC), and Tokyo Electron (TEL) predicting a decline in China spending next year, Applied Materials management has previously indicated that they expect the company's revenue from China to normalize around 30%, which includes approximately 10% from AGS and display sectors.
Citi's stance on the semiconductor capital equipment sector remains cautious during this third phase, as the firm awaits a full reset of the 2025/26 WFE expectations. This caution reflects a broader uncertainty within the industry about future spending patterns, particularly in the critical China market.
In other recent news, Taiwan Semiconductor Manufacturing Co (TSMC) has halted shipments of advanced chips to Chinese customers following a directive from the United States. This decision comes after a TSMC chip was discovered in a Huawei AI processor, indicating a potential breach of export controls. TSMC has assured its commitment to adhering to all applicable regulations, including export controls.
In addition, US lawmakers have requested detailed sales data to China from leading chip equipment manufacturers, reflecting increased scrutiny over semiconductor technology exports. This bipartisan initiative is part of a broader push against anticipated US regulations meant to tighten restrictions on semiconductor tool exports to China.
Also, Raymond (NS:RYMD) James has revised its price target for Applied Materials, a leading semiconductor equipment manufacturer, from $250 to $245, while maintaining an Outperform rating. This comes after Applied Materials reported a strategic reduction in its exposure to the Chinese market. The company is expected to benefit from the growth driven by Generation AI, particularly in High Bandwidth (NASDAQ:BAND) Memory (HBM) and Advanced Packaging (NYSE:PKG) segments.
Meanwhile, Micron Technology (NASDAQ:MU)'s higher-than-expected first-quarter revenue forecast has sparked renewed interest in AI chips on Wall Street, positively influencing other semiconductor stocks. Fiona Cincotta from City Index highlighted the resurgence of AI-driven optimism in the market.
InvestingPro Insights
As Applied Materials (NASDAQ:AMAT) approaches its earnings report, InvestingPro data provides additional context to Citi's bullish outlook. The company's market capitalization stands at $153.56 billion, reflecting its significant position in the semiconductor industry. With a P/E ratio of 20.77, AMAT is trading at a premium compared to some peers, which could be justified by its strong market position and growth prospects.
InvestingPro Tips highlight Applied Materials' financial strength and market position. The company has maintained dividend payments for 20 consecutive years and has raised its dividend for 7 consecutive years, demonstrating a commitment to shareholder returns. This is particularly relevant given the upcoming earnings report and investor focus on the company's future outlook.
Moreover, AMAT's operating income margin of 29.02% for the last twelve months suggests efficient operations, which could support the company's ability to navigate potential challenges in the Chinese market, as discussed in the article.
For investors seeking a deeper understanding of Applied Materials' prospects, InvestingPro offers 12 additional tips, providing a comprehensive view of the company's financial health and market position.
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