On Friday, Citi reiterated its Buy rating on Applied Materials (NASDAQ:AMAT) with a steady price target of $240. The firm's analysis followed Applied Materials' report of a strong quarter in July and guidance for October-quarter earnings per share (EPS) slightly above the Street's expectations.
Despite a 3% decline in AMAT stock after the announcement, Citi highlighted the company's robust demand driven by artificial intelligence (AI) and its expectations to maintain revenue from gate-all-around (GAA) technology at $2.5 billion in 2024, with a potential doubling in 2025.
Applied Materials anticipates its advanced packaging revenue to hit $1.7 billion in 2024, including $600 million from High Bandwidth (NASDAQ:BAND) Memory (HBM). The Interconnect, Contact, and Advanced Packaging (NYSE:PKG) Solutions (ICAPS) sector is projected to continue its strong performance, growing at a mid-to-high single-digit rate over time.
July-quarter revenue from China normalized to 32%, and management foresees this market remains robust, with better utilization and new customer acquisitions contributing to growth.
The company reported higher-than-expected gross margins, attributed to pricing and cost improvements, even with a lower revenue mix from China. In light of these results, Citi adjusted its calendar year 2024 and 2025 EPS estimates downwards by 2% but maintained the $240 price target based on a consistent 23 times price-to-earnings (P/E) ratio on the calendar year 2025 earnings power.
Citi's analysis suggests that the semiconductor capital equipment group is in the late Phase 2 stage and is expected to remain range-bound through the end of the year. This forecast is based on investor focus on the updated U.S. restrictions and their impact on China's spending in the sector. Despite these factors, Citi continues to recommend a Buy on Applied Materials.
In other recent news, Applied Materials Inc (NASDAQ:AMAT). has projected a robust Q4 revenue surpassing Wall Street expectations, thanks to strong demand for AI-powered chip-making tools. The company's forecast suggests revenue of approximately $6.93 billion, slightly higher than analysts' average projection. Additionally, Applied Materials predicts an adjusted profit per share in the range of $2.00 to $2.36 for the fourth quarter, above the estimated $2.14 per share.
In related developments, Cantor Fitzgerald adjusted the price target for Applied Materials shares, dropping to $250 from the previous target of $290, while maintaining the Overweight rating on the stock. This adjustment comes amid expectations of a modest beat and raise in the company's upcoming report.
Applied Materials has also introduced a series of materials engineering innovations aimed at improving the performance-per-watt of computer systems. These include the use of ruthenium in high-volume production to enhance copper chip wiring and a new low-k dielectric material that strengthens logic and DRAM chips for 3D stacking.
Furthermore, Applied Materials is under scrutiny from the U.S. Department of Commerce, which is seeking additional information about the company's shipments to China. The company also announced a 25% increase in its quarterly cash dividend, raising it from $0.32 to $0.40 per share.
InvestingPro Insights
As Citi maintains its positive outlook on Applied Materials (NASDAQ:AMAT), real-time data from InvestingPro aligns with the firm's sentiment, showcasing the company's financial robustness and potential for growth. Applied Materials has demonstrated a significant return over the last week with a 10.8% price total return, highlighting investor confidence which may counterbalance the recent 3% decline in stock price post-earnings announcement.
With a market capitalization of $175.39 billion and a P/E ratio that stands at 24.15, Applied Materials appears to be trading at a premium, which could be justified by its strong fundamentals and growth prospects. The company's gross profit margin over the last twelve months as of Q2 2024 remains high at 47.18%, indicating efficient operations and a competitive edge in the semiconductor equipment industry. Moreover, an InvestingPro Tip indicates that analysts have revised their earnings upwards for the upcoming period, suggesting that the market may expect even better performance ahead.
For those interested in dividend consistency, another InvestingPro Tip points out that Applied Materials has raised its dividend for 6 consecutive years, signaling a commitment to returning value to shareholders. For further insights and a total of 18 additional InvestingPro Tips for Applied Materials, investors can visit https://www.investing.com/pro/AMAT.
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