Applied Materials Earnings: Raising Fair Value Estimate; the Acceleration Is Here

Key Morningstar Metrics for Applied Materials

• Fair Value Estimate: $570.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Applied Materials’ Earnings

Applied Materials AMAT reported strong fourth-quarter results above guidance midpoints and provided strong guidance. Sales rose 53% year on year to $10.4 billion. January-quarter sales guidance of $11.1 billion well exceeded our model and portends massive growth in fiscal 2027.

Why it matters: Every signal indicates acceleration for Applied through 2027. We expect leading-edge logic, DRAM, and advanced packaging to drive huge growth and market share gains. Massive chip capacity investments through 2030 align with our multiyear artificial-intelligence-led growth cycle thesis.

• Investors may worry about a data center slowdown in the United States after a Democratic landslide in the midterm elections. We don’t see that bearing out, with customers continuing to want more supply, faster. We expect regulatory speed bumps ahead, but for massive investment to continue.
• Applied’s 30% market growth guidance for calendar 2027 aligns with peers Lam and KLA. We expect meaningful upside to this figure, and model 40% growth for Applied. We expect another huge year of growth in 2028 before a moderate growth deceleration.

The bottom line: We raise our fair value estimate for wide-moat Applied to $570 per share from $520, with higher medium-term growth estimates. Shares were flat after-hours and remain deeply undervalued to us. We see AI market concerns as overblown at this point, and focus on positive fundamentals.

• We model in line with Applied’s longer-term targets, including doubling revenue (by around fiscal 2029 in our model) and reaching 54% gross margin and 40% operating margin by 2030. We like the firm’s move to use modest price increases to improve margin during the AI growth cycle.
• We value Applied at 19 times fiscal 2029 earnings, after which we expect AI-led growth to taper. This matches our valuations across chip equipment. We also expect longer-term growth to remain slightly higher than historical levels of 7%, with continued AI chip supply investment.