Applied Materials Turns in Strong Q1 Despite Supply Chain Headwinds, Shares Fairly Valued

Wide-moat Applied Materials reported fiscal first-quarter revenue above the midpoint of management’s guidance. While the firm continues to navigate supply chain constraints, wafer fab equipment, or WFE, demand remains robust. Management expects 2022 WFE spending to cross the $100 billion threshold (up from the mid-$80 billion range in 2021). During the quarter, Applied's semiconductor systems backlog grew $1.3 billion to $8 billion, which gives us confidence in lasting growth over the course of the year. That said, we remain cautious of WFE spending slowing in 2023 as new capacity comes online and the ongoing chip shortage improves. We are maintaining our fair value estimate of $142 per share. Shares look fairly valued at current levels.