BofA lifts Applied Materials target to $190, maintains buy

On Friday, BofA Securities analyst Vivek Arya adjusted the price target for Applied Materials (NASDAQ:AMAT) shares, raising it to $190.00 and reaffirming a Buy rating. The company, currently valued at $142 billion, has shown impressive momentum with a 12.3% return over the past week. Arya’s analysis followed the company’s fiscal second quarter results, which showed sales and pro forma earnings per share (EPS) were in line and 4% higher than Wall Street expectations, respectively. According to InvestingPro, the stock’s RSI suggests it’s in overbought territory, with 12 more exclusive insights available to subscribers. The forecast for the fiscal third quarter was also on par with expectations, indicating a 3% quarter-over-quarter growth in Semi Systems, while AGS is expected to see a 1% decline.

Arya noted that despite strong trends in leading-edge foundry/logic (F/L) and advanced DRAM/HBM, Applied Materials’ significant exposure to the trailing-edge market, estimated to be around one-third of overall sales compared to about 20-30% for its peers, could limit growth in calendar year 2025 due to a moderating China mix. The company maintains strong financial health with a current ratio of 2.46 and operates with moderate debt levels, earning an overall "Good" financial health score from InvestingPro’s comprehensive analysis framework. Consequently, while the calendar year 2025 sales estimates remain mostly unchanged, the forecast for 2026 has been reduced by 3% due to softer trends in trailing-edge wafer fabrication equipment and AGS, which includes weaker 200mm equipment sales.

The revisions also reflected a 2% increase in the pro forma EPS estimate for calendar year 2025, attributed to better gross margins and operating margins, while the estimate for 2026 was lowered by 3%. Arya emphasized that Applied Materials is still poised to benefit from the same wafer fabrication equipment inflections that are driving industry growth, with an acceleration of leading-edge F/L trends expected in the second half of the year and advanced DRAM sales projected to grow by more than 40% in fiscal year 2025.

Arya pointed out that although Applied Materials’ growth may only align with the wafer fabrication equipment market in calendar year 2025 and lag behind peers experiencing year-over-year growth, the company has demonstrated more consistent growth over the past five years, with revenue growing at a 13% CAGR over the last five years. The valuation was highlighted as very reasonable, with the stock trading at approximately 18 times calendar year 2026 enterprise value/free cash flow, significantly below the peer average of around 24 times. Currently trading at a P/E ratio of 22.68x and showing a 6% revenue growth in the last twelve months, InvestingPro’s Fair Value analysis suggests the stock is fairly valued. Discover detailed valuation metrics and 14 key investment tips with an InvestingPro subscription, including access to the comprehensive Pro Research Report available for Applied Materials and 1,400+ other US stocks. This valuation, combined with robust free cash flow growth and capital returns, underpins the reiterated Buy rating and maintained price objective of $190, based on an unchanged 18 times calendar year 2026 price-to-earnings ratio.

In other recent news, Applied Materials reported its financial results for the second quarter of fiscal year 2025, revealing a record non-GAAP earnings per share (EPS) of $2.39, exceeding the forecast of $2.31. However, revenue came in slightly below expectations at $7.1 billion compared to the anticipated $7.12 billion. Barclays (LON:BARC) analyst Tom O’Malley adjusted the firm’s outlook on Applied Materials, raising the price target to $160 while maintaining an Equalweight rating, following the company’s earnings report. Meanwhile, Morgan Stanley (NYSE:MS) slightly reduced its price target for the company from $164 to $162, maintaining an Underweight rating due to emerging service headwinds in China. The company experienced a 21% sequential decline in its China segment, attributed to market conditions and export controls. Despite these challenges, Applied Materials is witnessing strong order patterns from trailing edge customers in China. The company remains focused on AI-enabling semiconductor technologies and expects continued growth in leading-edge foundry logic investments and a stable DRAM market.

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