Applied Materials Earnings: Good Results and Guidance Agrees With Our Upbeat Outlook for Fiscal 2025

Key Morningstar Metrics for Applied Materials

• Fair Value Estimate: $193.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Applied Materials’ Earnings

We maintain our $193 fair value estimate for shares of Applied Materials AMAT after October-quarter results fit our long-term growth thesis. We believe Applied is well-positioned for rising chip demand and higher chip complexity over the long run. In the medium term, we see artificial intelligence investment as a significant driver, but view the firm’s total opportunity as broad and representing the entire chip market. We expect strong medium-term growth for Applied and expect it to continue taking incremental share in the chip equipment market. We believe shares dipped after hours because revenue guidance met our expectations but missed those of more optimistic investors. We now see shares as lightly undervalued.

October-quarter revenue rose 5% year over year and 4% sequentially to $7.05 billion. Similar to previous quarters, we saw Applied’s main growth drivers as cutting-edge logic chips and DRAM memory chips, which we largely credit to AI investment. Applied benefits from cutting-edge chip demand and development. We believe technology transitions toward gate-all-around transistors, high-bandwidth memory, and advanced packaging broadly will all create incremental revenue for the firm. We also appreciate the steady growth of the firm’s services arm, which complements the more cyclical nature of chip equipment sales. China made up 30% of revenue, which we view as durable after supernormally high shipments in fiscal 2024.

January-quarter revenue guidance met our model, and the firm’s profitability outlook surpassed our expectations. Applied expects $7.15 billion in sales at the midpoint, implying 7% year-over-year growth. Non-GAAP gross margin guidance of 48.4% was nearly a full point above our model, and puts Applied squarely at its long-term target. We see guidance as positive and expect growth throughout fiscal 2025. With a modest after-hours selloff, we believe long-term investors have a good entry point for a high-quality long-term holding.