3. Applied Materials, Inc. (NASDAQ:AMAT)
Forward P/E Ratio: 16.31
Number of Hedge Fund Holders: 80
Analyst Upside Potential: 31.99%
Applied Materials, Inc. (NASDAQ:AMAT) is a technology company that specializes in providing solutions for manufacturing semiconductor chips and display technologies. It not only designs and manufactures equipment used to make semiconductor chips but also offers support services, spare parts, and automation software to help customers optimize their manufacturing processes. It also operates a Display segment through which it provides equipment for producing displays like LCDs and OLEDs used in TVs, laptops, smartphones, and other devices.
On February 18, Citi raised the firm’s target on the stock from $194 to $202, while keeping a Buy rating. The target price came in after the company posted encouraging results for the fiscal first quarter of 2025. During the first quarter, Applied Materials, Inc. (NASDAQ:AMAT) achieved record revenue of $7.17 billion, marking a 7% increase year-over-year. The growth was driven by its Semiconductor Systems and Applied Global Services segments, with significant contributions from leading-edge foundry logic and advanced packaging technologies.
Looking ahead, the company sees significant opportunities in emerging technologies such as gate-all-around transistors and silicon photonics. Moreover, it is also aiming to expand its market share through innovative solutions and strategic partnerships. It is one of the most undervalued high-quality stocks to buy according to analysts.
Vltava Fund stated the following regarding Applied Materials, Inc. (NASDAQ:AMAT) in its Q4 2024 investor letter:
“In the quarter just ended, we added to the portfolio two new companies from the technology sector: Applied Materials, Inc. (NASDAQ:AMAT) and Lam Research. Both are in the same industry as is another of our investments that we have held for some time, KLA Corporation. This industry is termed semiconductor devices and materials. One chapter in Hidden Investment Treasures is devoted to investing in technology companies and, among other things, the controversy over what really constitutes a technology company. As investors, we try to view technology companies not according to the industry into which they are formally classified but by whether the technologies and technological processes used in the production of their products and services are an essential element in value creation or if they are a source of long-term, sustainable competitive advantage. Among the companies that are formally categorized as technology-based and fall into either the Information Technology or the Communications Services sector, we find some that can be said to be just that but also others for which this classification is at least debatable. Similarly, among companies that do not formally belong to these two sectors, we find many that clearly are built to a large extent on technology and base their market positions and competitiveness on it. In the cases of Applied Materials and Lam Research, there can be no doubt that these are technology companies not only as a formality but also in fact.
Applied Materials provides manufacturing equipment, services, and software for the semiconductor, display, and related industries. Its principal business activities are semiconductor systems and Applied Global Services. Its largest customers are Samsung and Taiwan Semiconductors, but its overall clientele is more diversified than is that of Lam Research. At first glance, it would appear that Applied Materials has a somewhat less tangible and definable competitive advantage compared to KLA Corporation and Lam Research, but the numbers do not support such a view. Net margins likewise in the neighborhood of 27% and ROCE around 30% are outstanding. Basically, it can be said that all three companies we own have very similar underlying profitability metrics. Even their valuations, growth, and potential are similar. All have strong free cash flow and strong balance sheets, and they are regularly buying back their own shares over the long term and in large volumes…” (Click here to read the full text)