The soaring demand for artificial intelligence (AI) processing power has catapulted Nvidia to dizzying heights, leaving investors clamoring for the next big opportunity as chipmakers scramble to satisfy the AI revolution. Nvidia’s staggering revenue and earnings leaps owe much to the fervent need for its AI GPUs, resulting in weeks-long waiting lists for its coveted H100 processors. Sensing the goldmine, Nvidia is feverishly increasing production rates in a bid to sustain its remarkable stock price surge.
Amidst Nvidia’s meteoric 239% ascent in the past year, some discerning investors may seek a more financially palatable entry point into the AI craze. In this regard, Applied Materials emerges as a compelling contender, poised to reap the rewards of Nvidia’s AI chip amplification efforts.
On the financial front, Nvidia’s stratospheric valuations, with a 40 price-to-sales ratio and a trailing earnings multiple of 96, beckon a search for alternatives. Enter Applied Materials, a semiconductor manufacturing behemoth benefitting from Nvidia’s chip production magnification and catering to tech giants such as Samsung, Taiwan Semiconductor Manufacturing, and Intel.
Applied Materials Witnessing an AI-driven Surge in Semiconductor Spending
Applied Materials, the purveyor of crucial semiconductor manufacturing equipment, is reveling in a buoyant fiscal atmosphere fueled by a surge in semiconductor equipment expenditures. Its clientele roster boasts heavyweight industry players like Samsung and Taiwan Semiconductor Manufacturing, collectively accounting for 34% of its revenue in fiscal 2023. Vindicating this momentum, Applied Materials’ fiscal 2024 first-quarter results outshone expectations, with revenue hitting $6.7 billion and non-GAAP earnings per share soaring 5% year-over-year to $2.13 — decisively trouncing Wall Street forecasts.
Projected Growth Trajectory Elevates Applied Materials’ Investment Prospects
Applied Materials anticipates raking in $26.1 billion in revenue for fiscal 2024, effectively maintaining pace with its preceding year’s revenue of $26.5 billion. Noteworthy has been the company’s robust first-quarter showing and its directional guidance for the current quarter, projecting a potential revenue uptick. For the impending fiscal 2025, analysts project a formidable uptick in Applied Materials’ revenue and earnings.
Despite trailing Nvidia in pace, Applied Materials trades at a modest 22 times trailing earnings, offering a budget-friendly gateway into the AI domain. As semiconductor spending experiences an AI-induced upsurge, Applied Materials’ current valuation could morph into a transient bargain, signaling an opportune moment for prudent investors to seize.
Following a gratifying 6% post-earnings surge, Applied Materials appears primed to ride this wave of positivity and embark on a bullish trajectory.
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