On Friday, KeyBanc Capital Markets maintained its Sector Weight rating on shares of Applied Materials (NASDAQ: NASDAQ:AMAT) stock following the company's second-quarter earnings report.
Applied Materials exceeded consensus estimates with its second-quarter sales and earnings per share (EPS), and also provided third-quarter guidance that surpassed expectations.
Applied Materials, a key player in the semiconductor equipment industry, reported a 2% and 5% increase in F2Q sales and EPS above consensus, respectively. The company's third-quarter guidance also indicated a 1% and 2% increase above consensus for sales and EPS.
During the earnings call, the focus was on several growth opportunities, including the transition to gate-all-around (GAA) transistors, high bandwidth memory (HBM), and advanced packaging technologies. Applied Materials expects to generate $2.5 billion in revenue from GAA this year, with projections to double by fiscal year 2025.
The company has also raised its forecast for HBM, anticipating sixfold growth in fiscal year 2024 compared to fiscal year 2023, up from the previously expected fourfold increase. In the advanced packaging segment, Applied Materials is on track to achieve $1.7 billion in sales, with expectations to double in the following years.
The data center market is projected to become the leading driver of leading-edge foundry and logic wafer starts, eventually surpassing PCs and smartphones.
Applied Materials highlighted the Integrated Circuit, Automotive, Power, and Sensor (ICAPS) market as a strong opportunity, driven by the Internet of Things (IoT), edge computing, electric vehicles (EVs), autonomous vehicles, and renewable energy sectors.
The company's geographical sales mix in China remained consistent at 43% for the second quarter, similar to the previous two quarters, but is anticipated to normalize to around 30% by the end of the year.
The company's service and parts business, AGS, marked its 19th consecutive quarter of positive year-over-year growth. With an installed base of over 200,000 chambers, services are increasingly seen as a stabilizing factor for the company's financial results.
Despite the positive outlook, KeyBanc has decided to maintain its Sector Weight rating on Applied Materials, suggesting that a more robust recovery is already factored into the company's current stock valuation.
InvestingPro Insights
Applied Materials (NASDAQ: AMAT) continues to demonstrate financial robustness in the face of a dynamic semiconductor industry. According to recent InvestingPro Data, the company boasts a significant market capitalization of $177.84 billion USD, reflecting investor confidence. Notably, Applied Materials has a Price/Earnings (P/E) ratio of 25.39 for the last twelve months as of Q1 2024, which may suggest that the stock is trading at a premium relative to its earnings. Despite this, the company's gross profit margin stands at a healthy 46.98%, indicating strong operational efficiency.
Investors should also note that Applied Materials has a history of rewarding shareholders, as evidenced by its 20-year streak of dividend payments, with a recent dividend yield of 0.75%. An InvestingPro Tip highlights the company's ability to cover its interest payments comfortably with its cash flows, which speaks to its financial stability. Additionally, Applied Materials has seen an impressive one-year price total return of 71.74%, showcasing its growth potential in the stock market.
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