Applied Materials Positioned For 2025 Growth Despite Soft China Revenue And Light Q4 Guidance, Analysts Say

Applied Materials, Inc AMAT stock declined on Friday after the company reported upbeat third-quarter earnings on Thursday.

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

Applied Materials reported third-quarter revenue of $6.78 billion, beating the analyst consensus estimate of $6.67 billion. The company reported adjusted EPS of $2.12, beating analyst consensus estimates of 2.02.

Also Read: Applied Materials Stock Drops After Chips Act Denies Funding

Needham analyst Charles Shi reiterated Applied Materials with a Buy and a $260 price target.

JP Morgan analyst Harlan Sur maintained Applied Materials with an Overweight and raised the price target from $240 to $250.

Cantor Fitzgerald analyst C J Muse reiterated Applied Materials with an Overweight and a $250 price target.

Goldman Sachs analyst Toshiya Hari maintained Applied Materials with a Buy and a price target of $240.

KeyBanc analyst Steve Barger reiterated Applied Materials with a Sector Weight.

Needham: Shi flagged the fourth-quarter revenue guidance as light as most peers have guided to 5%-10% sequential growth through this earnings cycle. The analyst was surprised by the smaller China revenue in the third quarter, which accounts for only 32% of the total revenue, well below the ~40% China contribution seen by peers.

Much softer China revenue likely explains Applied Materials’ relatively light fourth-quarter guidance but should improve the setup for the stock if China wafer fab equipment (WFE) does decline into 2025, Shi said.

Shi projected fourth-quarter revenue of $6.93 billion and EPS of $2.18.

JP Morgan: Overall, Sur expects improving WFE trends as it moves through the remainder of 2024 and into 2025. As per the analyst, the team continued to drive year-on-year growth in their services business, primarily driven by growth in the installed base and increasing customer utilization.

He noted Applied Materials is well-positioned to benefit from multiple upcoming technology inflections that should push continued outperformance versus WFE over the next several years.

Sur projected fourth-quarter revenue of $6.93 billion and EPS of $2.18.

Cantor Fitzgerald: Muse flagged a few critical takeaways from the call overnight. First, domestic China fell to 32% of revenues from 43% in the prior quarter, yet Silicon revenues increased, led by strength in leading-edge Foundry or Logic and HBM DRAM. Second, actual and guided gross margins were still very high at 47.4%, with management reiterating its forecast of 48% in the calendar year 2025.

Muse noted Applied Materials’ work in driving higher margins is unlikely to be fully appreciated by investors today. And third, despite the Intel Corp INTC capex cut, there are no changes to the company’s outlook for Gate-All-Around (GAA) revenues to double into fiscal 2025 to $5.0 billion.

Muse said that Applied Materials remains a top pick, considering expectations for resuming WFE share gains into calendar year 2025 led by leadership in GAA and Advanced Packaging (particularly HBM). Muse projected fourth-quarter revenue of $6.93 billion and EPS of $2.18.

Goldman Sachs: While investor concerns related to potential incremental export restrictions could impact valuation multiples across the sector, Hari remains constructive on Applied Materials’ growth prospects into calendar year 2025 and beyond, particularly given its exposure to critical technology inflections, including Gate-All-Around transistors, Backside Power Delivery, and Advanced Packaging.

Furthermore, the analyst envisioned the company’s broad product and technology portfolio driving higher value capture over time, healthy operating expenditure leverage, and substantial operating margin expansion. Hari projected fourth-quarter revenue of $7.05 billion and EPS of $2.19.

KeyBanc: On the call, Applied Materials reiterated that its strength in materials science and engineering should enable leading-edge technology transitions in advanced logic, GAA, and current and future memory technologies, Barger noted.

AI was a dominant theme on the call. Applied Materials noted that the critical theme of reducing power consumption will likely drive the performance per watt over the next 15 years, the analyst flagged.

With respect to ICAPS, Applied Materials noted that the segment could post mid-single-digit-high-single-digit growth in coming years, driven by renewables, electrification, and edge sensors, among other things. Revenue in China was up 24% year over year but fell to 32% as a percent of the mix, Barger highlighted.

Looking forward, Applied Materials expects to see mid-single-digit to high-single-digit growth in China over time, the analyst noted. Barger projected fourth-quarter revenue of $7.13 billion and EPS of $2.27.

Price Action: AMAT is down 1.88% at $207.85 at last check Friday.

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