Shouldn't We Consider Purchasing This Affordable Semiconductor Stock Boasting Bargain Prices Now?
Applied Materials (AMAT), currently worrying investors with a 2.29% dip, has faced a rough patch lately. Despite outperforming expectations in revenue and earnings, the semiconductor equipment supplier has underperformed compared to the PHLX Semiconductor Sector index. This stark contrast in performance dates back six months, with AMAT dropping over 18%, while the semiconductor sector merely stayed flat.
The latest quarterly results, unveiled on February 13 for AMAT's fiscal 2025 first quarter, reveal revenues and earnings that surpassed Wall Street's expectations. But the company's cautious guidance sent the stock tumbling by 8% the following day.
Export controls weigh heavy, yet growth remains solid
CEO Gary Dickerson highlighted on the earnings conference call that recent U.S. export restrictions have hit Applied Materials' Chinese business hard. Dickerson estimates that the new rules will have an impact of around $400 million on AMAT's revenue in the current fiscal year, with roughly half of it coming from service revenue. This news explains the more modest revenue guidance of $7.1 billion for the current quarter.
Despite the challenges, the tepid revenue guidance indicates that AMAT's top line is projected to increase by nearly 7% year over year in the current quarter. This is an improvement compared to the flat performance witnessed in the previous year. Moreover, the company's earnings per share guidance of $2.30 suggests a double-digit increase, which is a remarkable leap considering the year-ago period's 5% boost in earnings.
International growth and services sector shine
AMAT's management has expressed confidence that the semiconductor industry's global spending will increase by 7% in 2025, following a similar surge in 2024. This optimistic outlook suggests that AMAT has ample opportunities to grow its sales and earnings beyond its troubled Chinese market.
As the services business constitutes a significant portion of AMAT's total revenue, it is poised to remain a reliable growth driver. The company's services business is forecasted to clock low double-digit growth over the long term. This expansion, despite the challenges brought on by the U.S. export restrictions, highlights Applied Materials' resilience and growth potential.
Valuation and future growth prospects
Applied Materials currently trades at a modest 21 times trailing earnings, making it an affordable play within the tech-heavy Nasdaq-100, which boasts a much higher earnings multiple of 34. The company's recent double-digit earnings growth is expected to continue thanks to the positive semiconductor spending environment, making the stock an intriguing buy option.
Analysts predict even better earnings growth in the future, as the semiconductor stock is projected to reach $8.65 per share by the end of the current fiscal year. These optimistic forecasts could wind up rewarding investors with additional upside.
To put things in perspective, AMAT is currently trading below its 200-day simple moving average, which indicates a short-term downtrend. However, the stock's 20-day average has acted as support, hinting at stabilization possibilities, and its 50-day average suggests some potential upward momentum.
In conclusion, while Applied Materials has recently faced challenges due to the cyclical nature of the semiconductor industry, U.S. export restrictions, geopolitical tensions, and regulatory investigations, its resilient financial performance and growth prospects make it an attractive semiconductor stock acquisition at the current price.
The financial struggles in Applied Materials' Chinese business, resulting from recent U.S. export restrictions, are expected to reduce the company's revenue by approximately $400 million in the current fiscal year. (containing: 'finance', 'money', 'export', 'restrictions')
Despite the impact of these export controls, investors might find interest in Applied Materials due to its relatively low earnings multiple compared to the tech-heavy Nasdaq-100, coupled with the expectation of continuous double-digit earnings growth. (containing: 'investing', 'stocks', 'earnings', 'nasdaq')
The staggering revenue growth expectation of nearly 7% for the current quarter, despite the more modest guidance, is a clear indicator that Applied Materials' financial health is not as hampered as it may seem. (containing: 'growth', 'revenue', 'staggering', 'indicator')
The U.S. export restrictions have not significantly affected the company's services sector, which is projected to exhibit low double-digit growth in the long term. (containing: 'fabrication', 'services', 'sector', 'growth')
