Goldman Sachs ups Applied Materials stock target, holds buy on outlook

On Friday, Goldman Sachs maintained a positive outlook on shares of Applied Materials (NASDAQ:AMAT), increasing the stock's price target to $230 from $228 and reaffirming a Buy rating. This adjustment comes despite a roughly 6% drop in after-hours trading, which analysts attribute to concerns over the company's engagement with specialty and trailing-edge process technologies.

The firm believes Applied Materials is poised to capitalize on upcoming technological shifts within the semiconductor industry, including the adoption of new transistor architectures, power delivery systems, and advanced packaging. These innovations are expected to become significant in the calendar year 2025 and beyond.

Analysts highlighted several factors reinforcing their confidence in Applied Materials, including the acceleration of service revenue growth, a favorable gross margin trajectory, and the company's consistent free cash flow generation and shareholder returns. These elements contribute to the firm's outlook on the company's financial health and future performance.

In light of these observations, Goldman Sachs made minimal adjustments to their financial estimates for Applied Materials. The updated 12-month price target reflects a slight increase, signaling continued optimism in the company's prospects amidst the evolving landscape of the semiconductor sector.

In other recent news, Applied Materials has been the subject of revised price targets by analyst firms Evercore ISI and Deutsche Bank (ETR:DBKGn). Evercore ISI reduced its target to $250 from the previous $260, citing the company's attractive valuation, while maintaining an Outperform rating. This followed Applied Materials' recent financial performance, which saw revenues of $7.05 billion for the October quarter of 2024, a 4% quarter-over-quarter and 5% year-over-year increase.

Meanwhile, Deutsche Bank adjusted the price target for Applied Materials shares to $200, down from the previous $220, maintaining a Hold rating on the stock. The firm's cautious outlook was influenced by mixed near-term spending in the wafer fabrication equipment sector and a decrease in the revenue contribution from China to Applied Materials.

In other developments, Applied Materials reported a record-breaking performance in fiscal 2024, marking the fifth consecutive year of revenue and earnings growth. The company reported net sales of $27.2 billion, a 2.5% increase from the previous year, and non-GAAP earnings per share (EPS) rose by 7.5% to $8.65.

Looking ahead, the company anticipates revenue growth in Q1 2025, expecting $7.15 billion in revenue and non-GAAP EPS of $2.29. Throughout the fiscal year, Applied Materials returned over $5 billion to shareholders through dividends and share repurchases. These recent developments highlight the ongoing changes within Applied Materials and the semiconductor industry.

InvestingPro Insights

Building on Goldman Sachs' positive outlook for Applied Materials (NASDAQ:AMAT), recent data from InvestingPro provides additional context to the company's financial position and market performance. As of the latest available data, Applied Materials boasts a substantial market capitalization of $153.34 billion, underlining its significant presence in the semiconductor industry.

The company's P/E ratio stands at 20.73, which, according to InvestingPro Tips, is considered high relative to its near-term earnings growth. This valuation metric aligns with Goldman Sachs' optimistic price target, suggesting that investors are pricing in future growth prospects, particularly in light of the anticipated technological shifts in the semiconductor industry mentioned in the article.

InvestingPro Tips also highlight that Applied Materials has maintained dividend payments for 20 consecutive years and has raised its dividend for 7 consecutive years. This track record of consistent shareholder returns corroborates Goldman Sachs' positive assessment of the company's free cash flow generation and shareholder return policies.

For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips that could provide further insights into Applied Materials' financial health and market position.

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