Applied Materials Faces Market Struggles Despite Positive Earnings

Santa Clara, California-based Applied Materials, Inc. (AMAT) delivers manufacturing equipment, services, and software to the semiconductor, display, and related industries. With a market capitalization of $128.4 billion, Applied Materials operates through its Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets segments. As a large-cap stock, AMAT’s significant size and influence in the semiconductor equipment and materials industry position it as a leader in materials engineering solutions worldwide.

Despite this strong foundation, AMAT has experienced a considerable decline, falling 38.2% from its all-time high of $255.89 reached on July 10, 2024. In the past three months, AMAT’s stock has decreased by 7.7%, which is a notable dip compared to the Nasdaq Composite Index’s slight 1.1% decline during the same period.

Looking at AMAT’s performance over the long term, the outlook appears grim. The stock has plummeted nearly 20% over the past 52 weeks and has fallen 18.1% in the last six months. This is a stark contrast to the NASX, which posted gains of 18.2% over the past year and 7.4% over the last six months.

As an indication of this downturn, AMAT’s stock has consistently remained below its 50-day moving average since mid-July and has been below its 200-day moving average since mid-October 2024, with only slight fluctuations in its trajectory.

Even after reporting better-than-expected results for Q1 on February 13, Applied Materials’ stock fell by 8.2%. The company revealed a year-over-year revenue growth of 6.8%, reaching $7.2 billion, surpassing Wall Street expectations by 18 basis points. In addition, its adjusted earnings per share (EPS) rose by 11.7% year-over-year to $2.38, beating consensus estimates by 4.4%. The company also saw improvements in its margins, with an adjusted gross margin of 48.9%, up by 1% from the previous year, and an adjusted operating margin increase of 1.1% to 30.6%.

However, a sharp decline in cash flow has raised concerns. AMAT reported a staggering 74% year-over-year drop in its non-GAAP free cash flow for the quarter, totaling $544 million. For Q2, the expected adjusted gross margin contraction of 50 basis points to 48.4% has further unsettled investor confidence.

In comparison to its peers, Applied Materials has also performed below expectations. Its stock has underperformed relative to Lam Research Corporation (LRCX), which has seen a 16.8% decline over the past 52 weeks and a 4.7% dip over the last six months.

Despite these challenges, analysts maintain a cautious optimism about Applied Materials. The consensus rating among the 34 analysts monitoring AMAT is a “Moderate Buy,” with a mean price target of $209.91, suggesting a potential upside of 32.8% from current levels.

On the date of publication, Aditya Sarawgi did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

More news from Barchart

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