On Friday, BofA Securities updated its outlook on Applied Materials (NASDAQ:AMAT) shares, increasing the price target to $250 from the previous $222 while sustaining a Buy rating on the stock.
The adjustment follows a reported beat and raise in the first and second fiscal quarters, alongside a clearer view of the company's growth prospects in artificial intelligence (AI).
Applied Materials, a leading provider in materials engineering solutions, is recognized for its significant market presence in AI silicon enablers such as gate-all-around (GAA), high-bandwidth memory (HBM), advanced packaging (AP), and backside power delivery (BPD). The company holds nearly a 50% share of the serviceable available market (SAM) in these areas.
Despite an anticipated decline in the benefits from incremental China DRAM shipments, which are expected to fade in the second half of the year, and a slowdown in ICAPS, analysts project that an uptick in AI-related sales and a broader DRAM market recovery will support growth.
Applied Materials has historically been the largest DRAM supplier, which positions it favorably for the anticipated market upturn.
The firm's projections for Applied Materials' sales and pro forma earnings per share (pf-EPS) for calendar years 2024 and 2025 have been revised upward, with sales expected to increase by 2% and 4%, and pf-EPS by 4% and 5%, respectively. The new price objective reflects these revised estimates.
The valuation multiple for Applied Materials has also been adjusted, with the price-to-earnings (P/E) target for calendar year 2025 now set at 25 times, up from the previous 24 times. This increase is justified by the expected acceleration of AI-driven sales growth leading into 2025, as per BofA Securities' analysis.
InvestingPro Insights
In light of BofA Securities' updated outlook on Applied Materials (NASDAQ:AMAT), current real-time data from InvestingPro provides additional context to the stock's performance and valuation. With a market capitalization of $177.84 billion and a P/E ratio of 25.21, AMAT is trading at a premium relative to its near-term earnings growth. Despite the high P/E ratio, the company has demonstrated a strong track record of dividend growth, having raised its dividend for 6 consecutive years and maintained payments for 20 years. This indicates a commitment to returning value to shareholders.
InvestingPro Tips highlight that while AMAT operates with a moderate level of debt, it has liquid assets that exceed short-term obligations, suggesting financial stability. Moreover, the company's cash flows can sufficiently cover interest payments, which is reassuring for investors concerned about the company's leverage. For those seeking to delve deeper into AMAT's financials and stock performance, there are 16 additional tips available on InvestingPro, offering a comprehensive analysis of the company's potential.
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