Analyst Note
| William Kerwin |We maintain our $110 fair value estimate for wide-moat Applied Materials after good fiscal third-quarter results. Sales in the quarter, as well as guidance for the fiscal fourth quarter, exceeded our model, but our long-term forecast is intact. Applied is enjoying good demand for its trailing-edge products, which is helping to offset weakness in the mobile and personal computer markets. Similar to peers like KLA and Lam that have already reported, Applied’s services business is also a good buoy to sales. A severe downcycle in memory chips is still weighing on results, but DRAM sales are faring much better than for flash. All in, we continue to view Applied as well-positioned to capitalize on long-term secular trends toward the Internet of Things, and advances in cutting-edge chips for applications like artificial intelligence, or AI. Nevertheless, we continue to find valuation challenging and see shares as overvalued.