Applied Materials Is Well-Positioned But 'Investigation' Taints Strong Quarter Outlook, Analysts Say

Applied Materials Inc AMAT shares were trading lower after the company reported its fourth-quarter (Q4) earnings. A report indicating the company is under criminal investigation in the U.S. for potentially avoiding export restrictions on China’s SMIC has also put pressure on the stock.

The results came amid an exciting earnings season. Here are some key analyst takeaways from the earnings release:

• Goldman Sachs analyst Toshiya Hari reiterated Buy with a 12-month price target of $156 on the stock.
• Needham analyst Charles Shi reiterated a Buy on AMAT stock with a price target of $180.
• Vijay Rakesh, Managing Director of Mizuho Securities, maintained Buy rating with a price target of $167.
• Stifel analyst Brian Chin has a Buy rating on the stock with a price target of $175 a share.

Goldman Sachs: Hari sees Applied Material’s Q4 as a “strong quarter and market share outlook offset by reported investigation.”

Applied’s solid performance was overshadowed by a Reuters report suggesting it may have evaded export restrictions on China’s largest foundry supplier, SMIC. This could impact valuation until a resolution is reached.

Needham: Shi sees Applied’s beat-and-raise Q4 earnings as largely positive and that AMAT’s business will not see much downside in 2024. The company expects leading-edge foundry/logic and NAND to be up YoY and DRAM to remain strong through 2024.

On the negative press that published right ahead of AMAT’s earnings, Shi said it “may be exaggerating the scope and impact of an ongoing DoJ investigation.

Mizuho: Rakesh sees Applied Materials well-positioned for the long term due to its strong backlog and secular technology transitions, despite stock fluctuations due to potential US sanctions and lack of a 2024E WFE outlook.

Stifel: Chin sees Applied’s strong year being overshadowed by "probe" into past China exports, lower ICAPS outlook in 2024. Applied has seen pushouts from several ICAPS customers, impacting revenue. To balance out lower ICAPS, the company expects improved foundry/logic and memory spending next year.

Stifel acknowledges risk of some overhang of the Reuters report on the stock in the short run.

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