Proactive Investors - Analysts at Jefferies have raised their price target for Applied Materials, Inc. (NASDAQ:AMAT) on their belief that it is an undiscovered AI play following the release of the company’s fiscal third quarter 2023 results which topped Street estimates.
According to the analysts, Applied Materials is benefiting from multiple sector trends driven by a tectonic shift to a parallel processing/IoT computing era.
These factors are that AI requires bigger chips, high-bandwidth memory, and advanced packaging; IoT driving trailing node demand; and the nationalization of semiconductor production due to their strategic importance.
“We view AMAT as an undiscovered AI play, as AI chips are driving the size of chips larger for the first time in the history of semis, which means more wafers are required to make the same number of chips,” they wrote in a note to clients.
“Additionally, these AI chips use multi-chip packages, driving demand for AMAT’s deposition and chemical mechanical planarization (CMP) tools for packaging applications.”
The analysts also highlighted that Applied Materials is the only semiconductor capital equipment stock in its coverage universe that is trading at a market multiple, which is in line with their thesis that investors seem skeptical about the factors driving its performance, specifically in relation to trailing node and advanced packaging.
“At 17 times our 2024 calendar year earnings per share (EPS) estimate, we view the risk/reward ratio as particularly attractive, given our view that Street estimates are too low, and we expect AMAT to re-rate to a 20% premium to the S&P 500 over the next several years as the market appreciates its secular drivers,” they wrote.
The analysts raised their price target from $160 to $175 and awarded it a ‘Buy’ rating.
Applied Materials shares traded up 1.8% at US$139.93 mid-morning on Friday.