Applied Materials Sees Strong China Sales, Advanced Technology Driving Analyst Optimism

Shares of Applied Materials, Inc. AMAT were highly volatile in early trading on Friday, after the company reported better-than-expected results for its fiscal second quarter.

The results came amid an exciting earnings season. Here are some key analyst takeaways.

Goldman Sachs On Applied Materials

Analyst Toshiya Hari maintained a Buy rating, while raising the price target from $220 to $240.

Applied Materials reported its fiscal second quarter revenue of $6.65 billion about 2% higher than consensus and non-GAAP earnings of $2.09 per share 3% above expectations, Hari said in a note.

Although the results and guidance for the current quarter were only marginally higher than expected, "we expect the improved outlook in leading-edge Logic/Foundry (i.e. Gate-All-Around) and DRAM (i.e. HBM) to drive considerable positive revisions to FY2024-26 consensus EPS," the analyst wrote. "We continue to view the company as a long-term share gainer within the context of the overall Wafer Fab Equipment market," he added.

Mizuho Securities On Applied Materials

Analyst Vijay Rakesh reiterated a Buy rating, while lifting the price target from $225 to $245.

Applied Materials reported its quarterly revenues and earnings higher than expected, with the gross margin of 47.5% coming in slightly better than consensus of 47.3%, Rakesh said. While DRAM and NAND revenue declined by 6% and 25% sequentially, Foundry/Logic revenue grew by 5%, he added.

"China up ~102% y/y (43% of total revs vs ~25-30% historical) with strong DRAM orders though dropping significantly into F4Q," the analyst wrote. The company guided to July quarter revenue and earnings of $6.65 billion and $2.01 per share, respectively, broadly in-line with expectations, he further stated.

JPMorgan On Applied Materials

Analyst Harlan Sur reaffirmed an Overweight rating, while raising the price target from $230 to $240.

Applied Materials reported "solid" quarterly results, "driven by continued strength in ICAPS and DRAM, growth in the emerging area of advanced packaging (HBM, 2.5D packaging), and sustained strength in service," Sur wrote in a note.

The guidance reflects a "ramp in leading edge foundry/logic spending and initial spending for large technology inflections like gate-all-around/backside power distribution, advanced DRAM/ HBM spending, and sustained ICAPS shipments," the analyst stated. All these trends could expand and drive growth into the back half of this year and through 2025, he added.

Check out other analyst stock ratings.

Stifel On Applied Materials

Analyst Brian Chin maintained a Buy rating, while lifting the price target from $230 to $240.

Applied Materials' guidance for the fiscal third quarter was only slightly above consensus and represents a "mild disappointment," Chin said. Despite this, the guidance "affirms our belief in the company's ability to leverage the breadth of its technology in a way few others have/ can resulting in remarkable revenue consistency throughout this downturn," he added.

While it still looks like a "mild inflection year for WFE spending across the industry," there could be "meaningful expansion in advanced foundry-logic/memory spending in 2025," the analyst added. Applied Materials seems well positioned to more than double its Gate-All-Around (GAA) revenue in 2025 to $5 billion, he added.

Cantor Fitzgerald On Applied Materials

Analyst C.J. Muse reiterated an Overweight rating and price target of $260.

"Looking to 2HCY24, management would not explicitly offer guide but did discuss an expected slowdown in domestic China DRAM, growth in domestic China ICAPS, accelerating spend in HBM DRAM, H/H growth in leading-edge foundry/logic, and some spending on NAND layer count increases," Muse wrote. The company could generate 5% sequential growth in the second half, "with upside from HBM DRAM and leading-edge F/L partially offset by slowdown in domestic China DRAM and more difficult comps," he added.

The analyst indicated that management’s comments suggest significant growth through 2025. The company expects GAA to contribute an additional $2.5 billion to total revenue, while Advanced Packaging could add at least $500 million in incremental revenue.

Needham On Applied Materials

Analyst Charles Shi reaffirmed a Buy rating and price target of $240.

China revenue remained elevated at 43% of the company's total sales, Shi said. "Management expects China DRAM revenue (we think ~HSD % of sales) will fall meaningfully in F3Q24 (Jul) and will approach zero in F4Q24 (Oct)," he added.

This decline is expected to be largely offset by "strength in ICAPS and a pickup in leading-edge foundry/logic, especially from 2nm GAA nodes," the analyst wrote. "We sense China revenue may not normalize to the ~30% level that the company previously predicted to reach exiting FY24, which should keep investors cautious," he further stated.

KeyBanc Capital Markets On Applied Materials

Analyst Steve Barger maintained a Sector Weight rating on the stock.

"On the call, AMAT focused on opportunities arising from the transition to GAA, and growth in HBM and advanced packaging," Barger wrote. While Applied Materials expects GAA to generate $2.5 billion in revenue in fiscal 2024, this could double in fiscal 2025, he added.

"For HBM, AMAT increased its outlook for FY24 to 6x growth (4x prior) vs. FY23, and for advanced packaging it expects to generate $1.7B in sales, which should double in coming years," the analyst stated. The company expects the data center market to become the #1 driver of leading-edge foundry/logic wafer starts, surpassing PCs and smartphones in coming years, he further said.

AMAT Price Action: Shares of Applied Materials were down 0.2% to $213.46 at the time of publication on Friday.

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