Applied Materials stock downgraded by Redburn-Atlantic on market share concerns

Investing.com - Applied Materials (NASDAQ:AMAT), the $153 billion semiconductor equipment giant trading at 23x earnings, saw its stock rating downgraded from Buy to Neutral by Redburn-Atlantic on Monday, with the price target lowered to $200.00 from $225.00. According to InvestingPro data, the stock’s RSI indicates overbought conditions, despite its strong financial health score.

The downgrade reflects Redburn-Atlantic’s analysis that Applied Materials’ largest profit contributor, Physical Vapor Deposition (PVD), is losing market share to competitors, particularly to Chinese firm Naura.

Beyond PVD concerns, the research firm expressed worry that Applied Materials’ product portfolio faces greater vulnerability to localization efforts in China compared to industry peers.

Redburn-Atlantic also concluded that while some elements of Applied Materials’ product lineup are well-positioned for the vertical scaling era, the company will likely struggle to match competitor growth rates at the 2nm node.

The firm further noted that demand remains weak in Internet of Things, Communications, Automotive, Power and Sensors (ICAPS) applications—mature node markets where Applied Materials has traditionally been strong and earned accretive margins—citing persistent overcapacity issues in these segments. Despite these challenges, the company maintains a robust 48% gross margin and has consistently raised its dividend for seven consecutive years.

In other recent news, Applied Materials announced a 15% increase in its quarterly cash dividend to $0.46 per share, marking the eighth consecutive year of dividend growth. The company also reported returning nearly $2.0 billion to shareholders in the second quarter of fiscal 2025 through dividends and share repurchases. Analysts have been adjusting their outlooks on Applied Materials, with Morgan Stanley (NYSE:MS) upgrading the stock to equal weight while setting a new price target of $158. TD Cowen lowered its price target to $220 but maintained a Buy rating, citing the company’s strong product portfolio. Cantor Fitzgerald kept its Overweight rating with a $200 target, noting that Applied Materials’ earnings per share exceeded expectations, although revenue fell slightly short. Citi raised its price target to $190, maintaining a Buy rating, and highlighted the company’s favorable earnings and revenue mix. Analysts have noted varying revenue projections, with some expecting growth in leading-edge foundry and logic revenue, while others foresee challenges in the DRAM and ICAPs markets. Despite these challenges, Applied Materials continues to maintain strong gross margins and engage in aggressive share buybacks.

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