Applied Materials Earnings: Strong Outlook Aligns With Our Long-Term Thesis, but Shares Are Rich

We maintain our $152 fair value estimate for wide-moat Applied Materials after the company's fiscal second-quarter outlook met our above-consensus model and aligned with our long-term thesis. Applied is enjoying a recovering chip market, with particular strength in artificial intelligence spending on cutting-edge logic chips and DRAM. Its outlook for calendar 2024 matches that of peers like Lam Research and KLA and entails growth in cutting-edge logic and memory spending, partially offset by moderation in lagging-edge logic. We continue to see Applied as well positioned to benefit from rising chip demand and win market share with its wide and deep portfolio of equipment. The stock shot up as much as 12% after hours following the release, and we continue to see it as overpriced.