S&P 500 slips, but losses kept in check as Nvidia climbs ahead of results
Investing.com -- Citi added Applied Materials (NASDAQ:AMAT) to its U.S. focus list, citing an improving sales outlook and an unwarranted valuation gap with semiconductor capital equipment peers Lam Research (NASDAQ:LRCX) and KLA Corp.
The brokerage said AMAT shares, up 17% this year, have trailed LRCX and KLAC by 25 percentage points due to tougher first-half comparisons tied to weaker DRAM and advanced packaging demand.
But it expects the second half of 2025 to mark a turning point, helped by stronger memory pricing and a more favorable mix of end markets.
We model AMAT 2H25 sales up 2% H/H versus LRCX and KLAC down 3%,” Citi analysts wrote, pointing to AMAT’s strong position in DRAM equipment and improved industry pricing for graphic memory chips.
Citi also said investor concerns about weakening demand from China were already reflected in Applied’s forecasts. The company expects China sales, excluding its display business, to settle in the mid-20% range of total revenue.
That aligns with expectations for a sharp drop in foreign equipment purchases in China next year, the firm noted.
Valuation was another key driver for the call. Applied trades at a 25%–33% price-to-earnings discount to Lam Research and KLA, wider than its historical average of 11%–15%, despite improvements in its core silicon business and gross margins approaching 48%.
Citi maintained its “buy” rating on the stock but warned that macroeconomic uncertainty, U.S. policy risks related to China and Taiwan, and reliance on AI-related demand remain potential headwinds.