Applied Materials, Inc.

AMAT Details

Applied Materials, Inc. (NASDAQ: AMAT) is engaged in designing, producing, and distributing semiconductor chips, also known as integrated circuits (ICs). Its operating segments are 1) Semiconductor Systems, which provides semiconductor capital equipment used for the chip-making process, including transferring patterns into device structures, transistor and interconnect fabrication, metrology, inspection and review, and packaging technologies; and 2) Applied Global Services, which offers integrated solutions to optimize equipment and fab performance and productivity.

Accelerating Growth Through Innovation: On September 08, 2021, AMAT launched an innovative product to enable silicon carbide (SiC) chipmakers in switching from 150mm to 200mm wafer production, which almost doubles die output per wafer, to meet the world's growing demand for premium electric vehicle powertrains. AMAT's latest 200mm Chemical Mechanical Planarization (CMP) system helps maximize chip performance, reliability, and yield by eliminating silicon carbide material from wafers.

Concurrently, AMAT also launched new technologies and capabilities aimed at helping customers accelerate their heterogeneous chip design and integration technology roadmaps. For example, the company is leveraging its advanced packaging and large-area substrates leadership technologies with industry collaborations to accelerate the availability of solutions that increase power, performance, area, cost, and time to market (PPACtTM).

Q3FY21 Results: The company reported YoY growth of 40.98% in net sales to USD 6.20 billion in Q3FY21 (ended August 01, 2021) compared to USD 4.40 billion in Q3FY20 (ended July 26, 2020). Net income for Q3FY21 increased to USD 1.72 billion from USD 841 million in Q3FY20. As of August 01, 2021, the company had cash & cash equivalents (including short-term investments) of USD 6.51 billion and total debt of USD 5.45 billion.

Key Risks: AMAT generates most of its revenue from a limited number of customers, concentrated primarily in China, Taiwan, and Korea. A slowdown or disruption of business activity in any of these areas or loss of critical customers can adversely impact AMAT's financial position.

Outlook: In Q4FY21, AMAT expects to clock revenue of USD 6.33 billion (+/- USD 250 million), along with a non-GAAP adjusted diluted EPS in the range of USD 1.87 – 2.01.  

Valuation Methodology: Price/Earnings Per Share Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

AMAT Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: AMAT's stock price has increased 55.76% in the past nine months and is currently leaning towards the higher band of its 52-week range of USD 54.15 to USD 146.00. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 46.62. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 124.91. Considering the uptick in the stock price, we believe the current price adequately reflects the strong business fundamentals and recommend a "Sell" rating on the stock at the current price of USD 134.59, down 4.41% as of September 20, 2021, 12:05 PM ET.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.

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