Applied Materials (NASDAQ: AMAT) plays a crucial role in the semiconductor industry. As one of the leading suppliers of chip manufacturing equipment, it caters to numerous customers in the foundry, logic, and memory chip sectors. Notable customers include Taiwan Semiconductor Manufacturing, Samsung, Intel, and Micron Technology.

In the past decade, Applied Materials has seen its stock soar nearly 600%. From fiscal 2014 to fiscal 2024 (ending this October), its revenue increased at a compound annual growth rate (CAGR) of 12%, while earnings per share (EPS) rose at a remarkable CAGR of 26%. This significant growth is mostly attributed to the expansion of the semiconductor market. Currently trading around $170, some investors speculate about the possibility of another stock split for Applied Materials.

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Stock Splits: A Look Back at Applied Materials

Applied Materials has split its stock nine times since its initial public offering (IPO) in 1972. For those who invested $1,000 in its IPO shares priced at $10, their holdings would now amount to 28,800 shares worth approximately $4.9 million, alongside around $46,000 in annual dividends.

Data source: Applied Materials.

With the current stock price, some analysts believe Applied Materials is due for another split. However, it has been approximately 22 years since the last stock split.

The Silence on Stock Splits: What’s the Reason?

The reasons for Applied Materials’ lack of stock splits in the past two decades remain uncertain. One factor may be that the previous splits did not necessarily decrease the stock’s value. A stock split effectively divides existing shares into more pieces, but does not influence market fundamentals like sales or profits. Additionally, the trend of commission-free and fractional trading has diminished the relevance of stock splits.

Despite the limited frequency of stock splits, they continue to generate interest among media and retail investors. Splits can make trading options easier, as options contracts are tied to blocks of 100 shares. Companies also find stock splits useful when compensating employees through stock-based bonuses.

Much like ASML and TSMC, which also have not split their shares in years, Applied Materials appears to prioritize business growth, weathering economic fluctuations, share repurchases, and increasing its modest dividend for long-term shareholders.

Future Growth Potential for Applied Materials

In fiscal 2021, Applied Materials’ revenue surged by 34% as chipmakers rushed to boost their production due to pandemic-related shortages. The company saw an 11% revenue boost in fiscal 2022, but growth slowed to 3% in fiscal 2023 and 2% in fiscal 2024 as demand in sectors like PC, smartphones, and automotive cooled. Economic pressures such as inflation and rising interest rates further intensified this challenge.

Looking ahead, analysts project that from fiscal 2024 to fiscal 2026, revenue and EPS may grow at CAGRs of 9% and 10%, respectively. Expected drivers of this growth include increased demand for AI and energy-efficient chips, a recovery in the memory chip market, and the launch of new OLED screens and IT devices. The company also aims to enhance customer loyalty by providing integrated solutions that streamline multiple production processes into a single system.

Considering these growth projections, Applied Materials appears reasonably priced at 18 times forward earnings. If it maintains this valuation and meets earnings targets, its stock could increase approximately 12% to $191 over the next year. While this rise may not capture the attention of aggressive growth investors, it remains a solid option for those looking to invest steadily in the expanding semiconductor market. Instead of pondering the likelihood of another stock split, investors would do well to consider buying into Applied Materials’ strong market position today.

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Leo Sun has positions in ASML. The Motley Fool has positions in and recommends ASML, Applied Materials, Intel, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.