10 Best Semiconductor Stocks to Buy for the AI Boom

6. Applied Materials, Inc. (NASDAQ:AMAT)

Number of Hedge Fund Holders: 74

Applied Materials, Inc. (NASDAQ:AMAT) is the world’s largest manufacturer of semiconductor wafer fabrication equipment (WFE), offering a comprehensive portfolio across the WFE ecosystem. The company leads in deposition technology, which involves layering materials onto semiconductor wafers, and focuses primarily on general-purpose logic chips produced by leading integrated device manufacturers and foundries, including TSMC, Intel, and Samsung.

Despite the stock being down -26% since the July 2024 peak as a result of intensifying US-China export restriction threats, the long-term outlook for AMAT is improving, as for 2025, the company sees strong demand for leading edge technologies accelerating, particularly in high-bandwidth memory, DRAM, advanced packaging and leading logic. AMAT expects to gain share as the industry transitions to Gate-All-Around transistor technology at 2nm. The addressable market for transistor and wiring technologies is growing by about 15% with this transition. The company’s services business is growing at a low double-digit rate, driven by an expanding installed base and increased service intensity for more complex tools. About 85% of AGS revenues are recurring, with 2/3 under long-term contracts, which presents an attractive setup for compounding value in this niche.

Applied Materials, Inc. (NASDAQ:AMAT) also commented on their margin expansion opportunity during the Wells Fargo 8th Annual TMT Summit. Here is what they said:

“If you look at our inventory on our balance sheet, it’s at a much better days of inventory position than it has been over the prior years. I feel really good about that. Along with that comes excess and obsolete material, a great job of managing those costs down.

And one thing I highlighted is that I expect our ability to improve pricing to mature as we go forward. We’ve been working on that process, and that will become a more meaningful benefit in our gross margin trajectory going forward.”