On Friday, KeyBanc Capital Markets continued to hold a Sector Weight rating on shares of Applied Materials (NASDAQ:AMAT), a leading provider of materials engineering solutions. The firm's analysis followed Applied Materials' third-quarter earnings and fourth-quarter guidance, which were in line with industry trends observed among the company's front-end peers.
In their assessment, KeyBanc noted Applied Materials' emphasis on its strength in materials science and engineering, which is expected to support technological advancements in various sectors including advanced logic, gate-all-around (GAA) transistors, and memory technologies.
The company highlighted artificial intelligence (AI) as a key topic during its earnings call, pointing out the industry's shifting focus towards reducing power consumption over increasing operations per second. This shift is anticipated to yield a significant 10,000-fold enhancement in performance per watt in the next 15 years.
Applied Materials also discussed its Integrated Circuit, Advanced Packaging (NYSE:PKG), Sensors, and Electromechanical (ICAPS) segment, predicting mid-single to high-single digit growth in the coming years. This growth is projected to be driven by factors such as renewable energy, electrification, and edge sensors.
Although specific projections for 2025 were not discussed, the company's revenue from China increased by 24% year-over-year, even as it represented a smaller percentage of the total revenue mix, dropping to 32%. Applied Materials foresees continued mid to high single-digit growth in China over time.
Despite these insights, KeyBanc anticipates maintaining its current estimates and does not foresee significant shifts in the consensus view. While there might be potential for revenue to surpass consensus estimates, Applied Materials has also adjusted its 2025 tax rate guidance to 14%, which could mitigate some of the possible earnings per share upside. Consequently, KeyBanc has decided to uphold its Sector Weight rating on the company's stock.
In other recent news, Applied Materials, a renowned name in the semiconductor industry, has been making significant strides in its financial performance. The company has reported record revenues for the third quarter of fiscal year 2024, with a 5% year-over-year increase, reaching a substantial $6.78 billion. The growth was observed across all three of its business segments, with Semiconductor Systems seeing a 5% YoY increase.
TD Cowen, a well-regarded investment firm, has maintained its Buy rating on Applied Materials, reflecting its confidence in the company's continued growth and profitability. The firm's assessment follows a shift in Applied Materials' revenue exposure in China, which normalized to 32% in the July quarter, a change driven by a decrease in spending on China DRAM, while demand for ICAPS remained robust.
Applied Materials projects a compound annual growth rate (CAGR) for its services segment (AGS) in the low double digits, and targets a gross margin (GM) of over 48% by the end of fiscal year 2025. These targets, along with the company's strategic investments, are seen as positive indicators of the firm's future performance.
Looking ahead, Applied Materials anticipates Q4 revenue of $6.93 billion and non-GAAP EPS of $2.18, both up 3% YoY at the midpoint. The company also plans to capture more than 50% of new device ramps spending in AI and energy-efficient computing.
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