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Santa Clara, California-based Applied Materials, Inc. (AMAT) provides manufacturing equipment, services and software to the semiconductor, display and related industries. With a market cap of $128.4 billion, Applied Materials operates through Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets segments.
Companies worth $10 billion or more are generally described as "large-cap stocks," Applied Materials fits right into that category, with its market cap exceeding this threshold, reflecting its substantial size and influence in the semiconductor equipment & materials industry. AMAT is the leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world.
Despite its notable strengths, AMAT has slipped 38.2% from its all-time high of $255.89 touched on Jul. 10, 2024. AMAT stock has plunged 7.7% over the past three months underperforming the Nasdaq Composite’s ($NASX) 1.1% dip during the same time frame.
Over the longer term, AMAT’s performance looks even grimmer. AMAT has plummeted nearly 20% over the past 52 weeks and 18.1% over the past six months, underperforming the NASX’s 18.2% gains over the past year and 7.4% gains over the past six months.
To confirm the downturn, AMAT stock has remained below its 50-day moving average since mid-July 2024 and below its 200-day moving average since mid-October 2024 with slight fluctuations.
Despite delivering better-than-expected results, Applied Materials’ stock plunged 8.2% in the trading session after the release of its Q1 results on Feb. 13. The company reported a notable 6.8% year-over-year growth in net revenues to $7.2 billion, exceeding the Street’s expectations by 18 basis points. Meanwhile, its adjusted EPS increased 11.7% year-over-year to $2.38, surpassing the consensus estimates by 4.4%. Furthermore, the company observed notable improvement in margins with its adjusted gross margin expanding 1% compared to the year-ago quarter to 48.9% and its adjusted operating margin expanding 1.1% to 30.6%.
However, the company observed a massive drop in cash flows, its non-GAAP free cash flow for the quarter dropped by a staggering 74% year-over-year to $544 million. Moreover, in Q2, the company expects its adjusted gross margin to contract 50 basis points quarter-on-quarter to 48.4%, which unsettled investor confidence.
Applied Materials has also underperformed its peer Lam Research Corporation’s (LRCX) 16.8% decline over the past 52 weeks and a 4.7% dip over the past six months.
Nonetheless, analysts remain optimistic about the company’s prospects. Among the 34 analysts covering the AMAT stock, the consensus rating is a “Moderate Buy.” Its mean price target of $209.91 indicates a notable 32.8% upside potential from current price levels.
