Applied Materials Earnings: We Raise Our Medium-Term Growth Forecast but Shares Are Still Overvalued

We raise our fair value estimate for shares of wide-moat Applied Materials to $168 per share, from $152, as we raise our medium-term growth estimates. We are increasingly confident in Applied’s ability to generate above-market growth from cutting-edge technologies like gate all-around, or GAA, transistors and high-bandwidth memory, or HBM. Fiscal second-quarter results and fiscal third-quarter guidance provided modest upside to our estimates, but our valuation increase is rooted in longer-term assumptions. In fiscal 2024, Applied’s results are being driven by strong DRAM and leading-edge logic chip equipment sales. Long-term, we view Applied as well-positioned, with its broad and moaty portfolio of equipment to continue gaining share in cutting-edge applications for new chips. Despite a strong fundamental opportunity, we continue to view Applied’s valuation as challenging.