This year just got worse for Applied Materials. (NASDAQ:AMAT) Investors hit the nail on the head last week when the company’s stock price plummeted 9% after its fiscal 2024 fourth-quarter results (three months ending Oct. 27) were released on Nov. 14.
The semiconductor equipment supplier’s sales and profits beat expectations, but the outlook wasn’t strong enough to satisfy Wall Street. Naturally, investors hit the panic button. Applied Materials stock has now lost 34% in value since hitting a 52-week high in early July of this year.
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However, there were some bright spots for investors in Applied Materials’ latest financial results. Let’s take a closer look at the company’s sharp decline in stock price to see if it’s a buying opportunity for investors.
Applied Materials’ fiscal fourth quarter sales were a record $7.05 billion, up 5% from the same period last year, and adjusted earnings rose 9% to $2.32 per share. Analysts had expected earnings of $2.19 per share on sales of $6.97 billion, but strong demand for the company’s manufacturing equipment needed to make artificial intelligence (AI) chips eclipsed expectations. exceeded.
For example, the company’s foundry and logic equipment sales rose 12% year over year due to increased demand for gate-all-around (GAA) transistor nodes, which are used by Samsung and others to make AI. Chips. GAA technology is the successor to Fin Field Effect Transistor (FinFET) technology, so it should continue to improve.
GAA is said to be more powerful and efficient than FinFET technology, helping chipmakers produce advanced chips for multiple applications ranging from AI to graphics cards, gaming, automotive, and 5G connectivity. It is expected that Applied Materials CEO Gary Dickerson said on the latest earnings call:
Overall, the transition from FinFET-based nodes to nodes with gate-all-around transistors and backside power distribution increases Applied Materials’ addressable market from about $12 billion to about $14 billion per 100,000 wafers of monthly capacity started. Expand to dollars.
More importantly, Dickerson believes the company can “capture more than 50% of the process equipment spending for gate-all-around nodes.” Applied Materials generated $2.5 billion in revenue from GAA equipment demand in fiscal 2024, a figure expected to double in the new fiscal year.
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But the company has been weighed down by weak spending in other semiconductor end markets such as telecommunications, automotive and the Internet of Things. Sales of equipment serving these markets decreased last quarter compared to the same period last year. As a result, Applied Materials’ guidance proved to be mixed. The company now expects earnings of $2.29 per share at the midpoint of its guidance range, slightly better than the consensus estimate of $2.27 per share.
Revenue guidance of $7.15 billion is slightly below the consensus estimate of $7.25 billion. However, guidance indicates that Applied Materials’ growth will improve slightly. The company’s revenue is expected to increase 6.5% year over year, and non-GAAP earnings are expected to increase 7.5%.
Given that Applied Materials’ revenue rose just 2% last fiscal year to $27.1 billion and earnings rose 6% to $8.61 per share, this quarter’s guidance suggests that the company is just at its best. This suggests that the company is about to reach a level of profit. Analysts expect the company’s sales and profits to increase by double digits this fiscal year.
AMAT earnings forecast data for current year by YCharts
Analysts expect Applied to deliver strong growth in fiscal 2025 despite potential headwinds, but Applied’s management also expects improvement in unprofitable segments, means that actual sales and profit growth may be higher than expected.
If that’s indeed the case, it wouldn’t be surprising to see the company’s fortunes turn around in the stock market. As such, investors may want to buy Applied Materials while it currently trades at a price-to-earnings ratio of approximately 19.6 times (below the 33 times price-to-earnings ratio of the tech-heavy Nasdaq 100 Index). You might want to consider it.
Additionally, Applied Materials has a 12-month price target of $231, according to the 36 analysts covering the stock. This would be a 37% increase from current levels. With strong demand for AI chips and a potential turnaround in other semiconductor segments, there’s a good chance this semiconductor stock will reach that level next year. So investors are getting a pretty good bargain in Applied Materials stock considering the upside it could bring.
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Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has a position in and recommends Applied Materials. The Motley Fool has a disclosure policy.
After the recent sell-off, is it finally time to buy this incredibly cheap semiconductor stock? Originally published by The Motley Fool
