On Friday, Deutsche Bank (ETR:DBKGn) adjusted the price target for Applied Materials (NASDAQ:AMAT) shares to $200 from the previous $220 while maintaining a Hold rating on the stock.
Deutsche noted that despite Applied Materials delivering a solid report and guidance, the company did not meet the more optimistic expectations of investors.
This is attributed to mixed near-term spending in the wafer fabrication equipment (WFE) sector, with artificial intelligence-related spending being robust, but other areas remaining soft.
The revenue contribution from China to Applied Materials has decreased, a trend that is expected to stabilize at around 30% through the calendar year 2025. This level aligns with historical averages and those of its peers.
Deutsche indicated that the report offered limited reasons to alter the firm's stance on Applied Materials, especially considering the expected 8% year-over-year revenue growth in 2025, which is slightly below the current market estimates of 11% growth for the same period.
Deutsche highlighted various factors influencing the revenue forecast, including strong performance in leading-edge segments, a decline in China's DRAM and foundry/logic investments, steady core DRAM, and muted NAND contributions.
With the anticipation of a broader acceleration in WFE spending and the ongoing uncertainty in significant segments of the WFE market for 2025 and beyond, the Hold rating was reaffirmed.
The price target adjustment to $200 is based on approximately 21 times the firm's slightly increased earnings per share estimates for the calendar year 2025. This new target reflects the current market conditions and the analyst's expectations for Applied Materials' financial performance in the coming years. The company's recent financial report and guidance have been closely analyzed to inform this updated assessment of its stock value.
In other recent news, Applied Materials Inc (NASDAQ:AMAT). announced a record-breaking performance in fiscal 2024, marking the fifth consecutive year of revenue and earnings growth. The company reported net sales of $27.2 billion, a 2.5% increase from the previous year, and non-GAAP earnings per share (EPS) rose by 7.5% to $8.65.
The firm's Q4 net sales contributed $7.05 billion to the annual figure, showing a nearly 5% increase, largely driven by the Semiconductor Systems and Services sectors.
Applied Materials forecasts revenue growth in Q1 2025, expecting $7.15 billion in revenue and non-GAAP EPS of $2.29. The company also anticipates revenues from gate-all-around nodes to double in 2025, while DRAM revenues grew over 60%, and advanced packaging revenues hit $1.7 billion. Applied Materials returned over $5 billion to shareholders through dividends and share repurchases.
However, the company noted weakness in automotive, industrial, analog, and image sensors, and expects China's revenue contribution to stabilize at around 30%. Despite these challenges, the company remains confident in its robust product portfolio and its ability to capitalize on the ongoing technology demand trends.
InvestingPro Insights
Applied Materials' recent performance and future outlook can be further illuminated by data from InvestingPro. The company's market capitalization stands at $153.34 billion, reflecting its significant position in the semiconductor industry. With a P/E ratio of 20.73, AMAT is trading at a premium compared to some peers, which aligns with Deutsche Bank's Hold rating and the analyst's view on the stock's current valuation.
InvestingPro Tips highlight that Applied Materials has raised its dividend for 7 consecutive years and has maintained dividend payments for 20 consecutive years. This consistent dividend policy underscores the company's financial stability, which is crucial given the cyclical nature of the semiconductor industry. Additionally, AMAT's cash flows can sufficiently cover interest payments, indicating a solid financial position that supports its ongoing operations and investments in research and development.
The company's revenue for the last twelve months as of Q3 2024 was $26.85 billion, with a modest growth of 1.17%. This aligns with the analyst's observations about mixed spending in the wafer fabrication equipment sector. The operating income margin of 29.02% demonstrates AMAT's ability to maintain profitability despite market challenges.
For investors seeking a deeper understanding of Applied Materials' financial health and market position, InvestingPro offers 12 additional tips, providing a comprehensive analysis to inform investment decisions.
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