Applied Materials (Nasdaq: AMAT) builds the machines that make the chips that power our digital world. This semiconductor equipment manufacturer provides the essential tools and services needed by chipmakers to produce advanced integrated circuits for everything from smartphones to AI data centers.
The stock has been on quite a journey. After climbing from around $115 in mid-2023 to over $250 by mid-2024, the shares have tumbled roughly 45% to about $138 today. This steep decline has many investors wondering whether the stock has become a bargain, especially given the company’s critical role in the semiconductor supply chain.
Despite the stock’s recent poor performance, Applied Materials just delivered record quarterly revenue of $7.2 billion in the first quarter of fiscal 2025, up 7% year over year. The company’s gross margin improved to 48.9%, its highest level in 25 years, while operating margin increased to 30.6%. These strong results helped drive a 12% boost in earnings per share to $2.38.
Looking ahead, management remains optimistic about the company’s growth prospects, pointing to AI as a major catalyst for semiconductor demand. In the company’s latest earnings call, CEO Gary Dickerson highlighted that the market remains on track to exceed $1 trillion in annual revenues by 2030. He went on to add that AI is “only at the beginning of what’s possible.”
The company is also showing impressive momentum in advanced chip manufacturing, especially as customers start using the latest technologies with next-generation transistors.
When we put Applied Materials through The Value Meter’s analysis, we find a stock that’s right on the border between fairly valued and slightly undervalued.
The company’s enterprise value-to-net asset value ratio sits at 5.65, just below the average of 5.72 for similar companies. This suggests that the stock trades at a slight discount to its peers.
On the cash flow front, Applied Materials has delivered positive free cash flow in each of the past four quarters, with its quarterly free cash flow averaging 8% of its net assets. This is very close to the peer average of 8.24%.
For long-term investors looking to gain exposure to the AI revolution and the semiconductor industry, Applied Materials represents a quality business that’s now available at a reasonable price. With its strong market position in critical areas like manufacturing processes, high-performance memory, and advanced packaging, the company appears well positioned to benefit from the technology transitions that will drive semiconductor growth in the years ahead.
The Value Meter rates Applied Materials as “Appropriately Valued,” though it’s right on the edge of being “Slightly Undervalued.”
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