We recently compiled a list of the 10 Best Semiconductor Stocks to Buy for the AI Boom. In this article, we are going to take a look at where Applied Materials, Inc. (NASDAQ:AMAT) stands against the other semiconductor stocks.
More than two years have passed since the proliferation of the disruptive Artificial Intelligence (AI) megatrend, symbolically marked by the launch of OpenAI’s revolutionary product – ChatGPT. Since then, the AI revolution has accelerated rapidly, with 2023 and 2024 seeing a surge in demand for advanced AI applications across industries. This transformation has driven companies to increasingly rely on robust data centers that can support the computational power required by the intelligent algorithms.
In tandem with the rise of AI, the data center sector has experienced substantial growth. The need for larger, more efficient, and scalable data storage and processing capabilities has created a boom in infrastructure investments. Data centers, which house the powerful servers needed for AI workloads, have become critical enablers of this technology’s expansion. This increase in demand for data center capacity is a key factor that has propelled semiconductor stocks, as these centers rely heavily on cutting-edge semiconductors to deliver the speed, efficiency, and power necessary to process vast amounts of data in real time.
Our Methodology
We shortlisted 35 semiconductor stocks using the holdings of iShares’ Semiconductor ETF. Then we merged these stocks with Insider Monkey’s proprietary hedge fund holdings database and identified the 10 most popular hedge fund semiconductor stocks. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A technician in a clean room assembling a semiconductor chip using a microscope.
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.”
Overall AMAT ranks 6th on our list of the best semiconductor stocks to buy for the AI boom. While we acknowledge the potential of AMAT as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMAT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.
