We recently compiled a list of the 7 Best Semiconductor Stocks to Buy Now. In this article, we are going to take a look at where Applied Materials, Inc. (NASDAQ:AMAT) stands against the other semiconductor stocks.
In an updated forecast, The World Semiconductor Trade Statistics (WSTS) revised its 2024 projections upward, expecting a strong 19.0% YoY growth in the broader semiconductor market. The global market value for 2024 is now pegged at $627 billion, demonstrating improvement in performance in Q2 2024 and Q3 2024, mainly in the computing sector. Growth in 2024 is expected to be aided by 2 Integrated Circuit segments- Memory, which can increase by 81.0%, and Logic, which is expected to grow by 16.9%.
Region-wise, the Americas and Asia Pacific are well-placed to lead the recovery, with expected growth rates of 38.9% and 17.5%, respectively.
What Lies Ahead for The Semiconductor Market?
WSTS expects broad-based improvement for the semiconductor market in 2025, with an 11.2% growth, resulting in an estimated $697 billion in global market valuation. This growth is expected off the back of the Logic and Memory sectors, which together are expected to surpass $400 billion in value. This consists of a YoY growth of more than 17% for Logic and 13% for Memory. Notably, other semiconductor categories are projected to grow at more modest, single-digit rates, demonstrating a steady expansion for the broader industry.
WSTS believes that, in 2025, all the regions will be well-placed for continued expansion. The Americas and Asia Pacific regions will maintain their double-digit growth year over year.
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Key Trends Likely to Aid Semiconductor Market in 2025
IDC predicted some critical trends in the semiconductor market. While AI-driven rapid growth continues to be on top of the list, the Asia-Pacific IC (Integrated Circuits) design market will continue to heat up. The memory segment is expected to be aided by the increased penetration of high-end products including HBM3 and HBM3e, which are needed for AI Accelerator, and the new generation of HBM4, which is expected to be rolled out in H2 2025. The non-memory segment is expected to be supported by healthy demand for advanced node ICs for AI servers, high-end mobile phone ICs, and WiFi7.
As per IDC, Asia-Pacific IC design product lines remain rich and diversified. Since inventory levels have been stabilizing, demand for personal devices is picking up, and AI computing continues to extend to a wide range of applications, the overall demand for IC design is expected to increase. Mature nodes (22nm-500nm) continue to have a wide range of applications spanning consumer electronics, industrial control, automotive, and other industry segments. Looking ahead, the demand is anticipated to improve after the correction and oversupply. This is expected to be aided by consumer electronics and periodical inventory replenishment across automotive and industrial control sectors.
Our Methodology
To list the 7 Best Semiconductor Stocks to Buy Now, we used a screener and sifted through several online rankings. After getting an initial list of 12-15 stocks, we chose the ones that were popular among hedge funds. Finally, the stocks were arranged in ascending order of their hedge fund sentiment, as of Q3 2024.
At Insider Monkey we are obsessed with 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 engaged in the provision of manufacturing equipment, services, and software to the semiconductor, display, and related industries. The company has a strong position in the semiconductor equipment market, mainly in deposition technologies. Its product portfolio remains well-aligned with areas of incremental spending in the broader semiconductor industry. This strategic positioning can contribute to market share gains and revenue growth in 2025.
The semiconductor industry continues to see increased adoption of gate-all-around (GAA) transistors. In fiscal 2024, Applied Materials, Inc. (NASDAQ:AMAT) generated more than $2.5 billion in revenue from GAA-related products, and the company anticipates this figure to double by 2025. With the continuous growth in GAA adoption, the company’s addressable market expands, leading to growth opportunities. Therefore, Applied Materials, Inc. (NASDAQ:AMAT)’s strong position in GAA technology and Advanced Packaging demonstrates significant growth opportunities.
Applied Materials, Inc. (NASDAQ:AMAT) believes that the semiconductor industry is expected to reach a $1 trillion market by 2030 and the company sees healthy demand in leading-edge logic and ICAPS nodes. Vltava Fund, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“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)
Overall AMAT ranks 7th on our list of the best semiconductor stocks to buy now. While we acknowledge the potential of AMAT as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued 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.
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Disclosure: None. This article is originally published at Insider Monkey.