Morningstar

Applied Materials: We Expect Upside Heading Into July-Quarter Results

We’ve raised our fair value estimate of Applied stock.

Signage with logo at the Silicon Valley headquarters Applied Materials.
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Securities in This Article
Applied Materials Inc
(AMAT)

Key Morningstar Metrics for Applied Materials

  • Fair Value Estimate
    : $520.00
  • Morningstar Rating
    : ★★★
  • Morningstar Economic Moat Rating
    : Wide
  • Morningstar Uncertainty Rating
    : High

We’ve refreshed our model assumptions for Applied Materials AMAT heading into the firm’s July-quarter earnings report. Peers Lam and KLA have reported June-quarter results in recent weeks, giving context for the broader chip equipment demand picture.

Why it matters: We expect strong results at the high ends of guidance in July, and we expect upside for October-quarter guidance versus FactSet consensus estimates. We believe strong medium-term WFE demand is getting incrementally stronger, supported by steep AI chip supply constraints.

  • We now expect global WFE spending to surpass $150 billion in calendar 2026. We expect superb market growth through 2028, driven by AI investments, supporting more than 20% annualized growth for Applied. Thereafter, we model growth tapering down toward the high single digits.
  • Applied looks well-positioned to capture an outsized portion of AI chip equipment demand, with a broad portfolio that sets it up particularly well for an era of advanced packaging in chipmaking. We expect Applied and its wide-moat peers to gain incremental share over the medium-term.

The bottom line: We raise our fair value estimate for wide-moat Applied to $520 per share from $470 to reflect incrementally higher growth through 2030. After upside guidance from KLA and Lam, we expect similar upside for Applied. Shares look fairly valued.

  • We model close to 20% compound annual growth through 2030, with faster growth in the next three years. We see good operating leverage for Applied, generating more than 25% compound annual earnings growth over this period. The fundamentals are very attractive.
  • Applied stock is down 30% from its June peak following a broader tech market selloff. At its peak, we saw excess optimism priced into the stock, and now think the market is appropriately valuing tapering growth after 2028. We value Applied at 20 times our fiscal 2029 earnings estimate.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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