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On Friday, Raymond (NSE:RYMD) James analyst Srini Pajjuri adjusted the price target for Applied Materials (NASDAQ:AMAT) shares, reducing it to $200.00 from the previous $225.00, while maintaining an Outperform rating on the stock. The semiconductor equipment giant, currently valued at $142 billion, trades at $174.75 with a P/E ratio of 22.68. According to InvestingPro analysis, the stock’s technical indicators suggest it’s in overbought territory, one of 14 key insights available to subscribers.
Pajjuri’s commentary highlighted that Applied Materials’ second fiscal quarter revenue and third-quarter outlook aligned with consensus expectations, with earnings per share (EPS) trending better due to margin strength. The company’s impressive gross profit margin of 48.14% and substantial revenue of $28.09 billion demonstrate its operational efficiency. The performance in Advanced Logic and NAND sectors was noted to have compensated for the weakness in ICAPS (integrated circuit, assembly and packaging services) segments. This weakness was somewhat unexpected in light of the stronger results from the company’s peers. For deeper insights into Applied Materials’ financial health and growth prospects, InvestingPro subscribers can access comprehensive analysis and valuation metrics.
The analyst pointed out that the ICAPS exposure, which is particularly weak in and outside of China, is the primary reason for the lack of revenue upside. However, demand remains robust in other markets, driven by generational artificial intelligence (GenAI) and spending in Advanced Logic and high bandwidth memory (HBM). The company is also seen to benefit from secular trends such as gate all around (GAA) and backside power (BSP) technologies.
Despite the impact of export restrictions on near-term Services growth, management’s confidence in achieving double-digit growth in the long term was underscored. Pajjuri commended Applied Materials’ impressive gross margin execution, which has been bolstered by efficiency gains, product mix, and value-based pricing initiatives.
The analyst has slightly increased EPS estimates and expects Applied Materials to at least keep pace with the growth in wafer fabrication equipment (WFE) over the long term. With the stock trading at 15 times the projected FY26 EPS, Pajjuri believes the risk/reward profile is attractive, citing the secular tailwinds from GenAI, the bottoming out of the ICAPS business, and consistent margin execution. The revised price target reflects these factors while reiterating the Outperform rating. The company’s strong financial position is evidenced by its healthy current ratio of 2.46 and robust cash flows. For a complete assessment of Applied Materials’ investment potential, including Fair Value estimates and detailed financial metrics, explore the comprehensive Pro Research Report available exclusively on InvestingPro.
In other recent news, Applied Materials reported its financial results for the second quarter of fiscal year 2025, achieving a record non-GAAP earnings per share (EPS) of $2.39, which exceeded forecasts of $2.31. However, the company’s revenue slightly missed expectations, coming in at $7.1 billion compared to the anticipated $7.12 billion. Following the earnings announcement, BofA Securities raised its price target for Applied Materials to $190, maintaining a Buy rating, while Barclays (LON:BARC) increased its price target to $160 with an Equalweight rating. Conversely, Morgan Stanley (NYSE:MS) adjusted its price target downward to $162, keeping an Underweight rating due to emerging service headwinds and challenges in the 200mm equipment market, particularly in China.
Applied Materials’ latest earnings report highlighted a 7% year-over-year growth in Semiconductor Systems revenue, driven by demand in AI-enabling semiconductor technologies. Despite challenges in the China market, the company anticipates overcoming the effects of export controls in the coming quarters, as noted by Barclays. Furthermore, Morgan Stanley highlighted Applied Materials’ progress in achieving 100% growth in the 2nm gate-all-around technology by calendar year 2025, potentially resulting in $5 billion in revenue. The company continues to face hurdles in the Applied Global Services (AGS) division, with weak sales of 200mm equipment, according to Barclays.
Overall, these developments reflect Applied Materials’ strategic positioning amidst a dynamic market environment, with analysts providing mixed outlooks on the company’s future growth potential.
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