1. Applied Materials, Inc. (NASDAQ:AMAT)
Number of Hedge Fund Holders: 70
Applied Materials, Inc. (NASDAQ:AMAT) is the best semiconductor equipment stock to buy now according to hedge funds. As of April 26, the stock has gained 13.78% year to date and is trading at a PE multiple of 14x.
On March 1, KGI Securities analyst Derek Chang upgraded Applied Materials, Inc. (NASDAQ:AMAT) to Outperform from Neutral and reiterated his $145 price target on the shares.
At the end of the fourth quarter of 2022, Applied Materials, Inc. (NASDAQ:AMAT) was spotted on 70 hedge funds’ portfolios. These funds held positions worth $3.7 billion in the company. As of December 31, Generation Investment Management is the dominant stockholder in the company and has a position worth $678 million.
Davis Advisers made the following comment about Applied Materials, Inc. (NASDAQ:AMAT) in its 2022 annual investor letter:
“If Berkshire represents “growing value” then Applied Materials, Inc. (NASDAQ:AMAT) might be said to represent “undervalued growth.” Founded more than a half century ago, Applied Materials has grown to be the largest supplier of manufacturing tools, services and software to the semiconductor industry. Holding more than 15,000 patents, Applied has become the irreplaceable supplier to the critical global growth industry, semiconductors. Because this company’s earnings can be uneven, short-sighted investors often label this company as “cyclical” and assign it a relatively low valuation.
We disagree and, having perused more than 50 years of data, conclude that Applied is unquestionably a growth company trading at a value price. Figure 8 shows the two sustainable drivers of this growth. The green bars indicate that semiconductor manufacturers have grown industry revenue at 7.5% over the last decade, more than three times the growth of the U.S. economy over this same decade. The orange line indicates that the percentage of this revenue that the industry commits to capital spending has gradually risen from roughly 20% to 30%. Putting these two trends together, it should come as no surprise that Applied has grown revenue at a rate of 11%, and operating income at more than 19% over this same time period.
In the near term, the impact of the chip industry’s post-pandemic inventory correction, which could reduce equipment demand, may more than offset the benefit of recent supply chain issues that limited Applied Materials’ ability to meet customer demand. Longer term, geopolitical tensions between China and the U.S. are driving investment in potentially redundant chip production globally, while at the same time the U.S. and her allies are restricting export of leading edge production tools into China. Even though the near term is frustratingly veiled in uncertainty, the recent shortages and trade restrictions have firmly established that access to chip-production technology is essential to every major industrial economy. Given this, we see more opportunity than risk and estimate that Applied Materials could sell at about 10 times what the company could be earning three-to-five years from now.”
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