On Friday, Morgan Stanley updated its outlook on Applied Materials (NASDAQ:AMAT), increasing the stock's price target slightly to $224 from the previous $223, while keeping an Equalweight rating on the shares. The firm's perspective is that recent developments have significantly mitigated short-term risks related to export controls.
According to the analyst's statement, the concerns about China's DRAM industry possibly being affected by the next wave of export restrictions have been alleviated. Reports had suggested that further limitations might be under consideration, but with China DRAM's reduction to minimal levels this quarter and the expectation to remain so in the next, the potential impact on earnings per share (EPS) is expected to be materially reduced.
The analyst expressed surprise over the compensatory strength in trailing edge logic sectors, which was not anticipated. However, the advanced technology drivers are perceived to be favorable for Applied Materials, which has influenced the firm's decision not to adopt a more cautious stance.
The valuation model used by Morgan Stanley involves maintaining a price-to-earnings (PE) multiple of 23 times for the calendar year 2025. Based on the new estimated EPS of $9.74 for CY25, the slight increase in the price target to $224 has been justified.
The update reflects Morgan Stanley's analysis of the current situation surrounding Applied Materials, taking into account the potential impacts of geopolitical and market factors on the company's performance.
In other recent news, Applied Materials has been the center of various financial reviews and projections. The semiconductor company's third fiscal quarter results surpassed expectations, with revenues of $6.778 billion and an earnings per share (EPS) of $2.12. Goldman Sachs reiterated its Buy rating on the company's stock, anticipating a positive growth trajectory through 2025. Bernstein also raised its price target for Applied Materials to $250, maintaining an Outperform rating.
In addition to strong earnings, Applied Materials projected growth for the fourth fiscal quarter, attributing this to increased demand in leading-edge Logic/Foundry and High-Bandwidth Memory sectors. Deutsche Bank adjusted its price target for the company to $230, noting robust financial results and a modest increase in revenue and gross margin estimates.
Applied Materials also introduced a series of materials engineering innovations aimed at improving the performance-per-watt of computer systems. Additionally, the company announced a 25% increase in its quarterly cash dividend, raising it from $0.32 to $0.40 per share.
InvestingPro Insights
As Morgan Stanley revises its outlook on Applied Materials, real-time data and insights from InvestingPro provide additional context to the company's financial health and market performance. Applied Materials has demonstrated a consistent track record of rewarding its shareholders, as evidenced by an increase in its dividend for six consecutive years, signaling a commitment to returning value to investors. Analysts have also shown confidence in the company's earnings potential, with 18 analysts revising their earnings estimates upwards for the upcoming period.
InvestingPro data further illuminates the company's market position with a robust market capitalization of $175.39 billion and a P/E ratio of 24.15, which, while on the higher side, may reflect investor confidence in its future growth. The company has also experienced a significant return over the last week, with a 10.8% price total return, showcasing its recent market momentum. Despite some volatility in stock price movements, Applied Materials maintains a strong financial foundation with liquid assets surpassing short-term obligations.
For investors looking to delve deeper into Applied Materials' prospects, there are additional InvestingPro Tips available, offering insights into the company's industry standing, financial stability, and growth potential. To explore these further, visit https://www.investing.com/pro/AMAT.
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