Applied Materials stock price has remained in a tight range in the past few weeks as investors focused on the data center and artificial intelligence industry. AMAT was trading at $182.80 on Friday, down by over 28% from its highest level this year. So, is Applied Materials a good stock to buy ahead of its earnings?
AI investment continuing
Applied Materials is a major semiconductor company that supplies products to firms such as Taiwan Semiconductor, Intel, and Global Foundries. Its products include complex solutions such as Chemical Vapor Deposition (CVD), atomic vapor deposition (ALD), and Electrochemical Deposition (ECD).
AMAT has benefited from the recent tailwinds on artificial intelligence that have led to a big increase in semiconductor demand globally. This growth has helped to push its revenue significantly higher in the last few years.
AMAT’s annual revenue rose from $17.2 billion in 2020 to over $27.1 billion in the last financial year.
While growth has slowed recently, there is a likelihood that it will benefit from increased AI spending. According to the FT, the biggest tech companies in the United States are preparing to spend $320 billion in AI investments this year, with Amazon spending $100 billion. These firms spent about $264 billion in 2024.
The main concern is that robust spending on data centers has not significantly increased AI revenues. Alphabet has yet to provide details about the revenue numbers from its Gemini AI solution, and many customers have been wary of subscribing to the expensive Microsoft Copilot product.
AMAT earnings ahead
The next important Applied Materials stock price catalyst will be its upcoming earnings, which will provide more color about its business.
The most recent fourth-quarter numbers showed that its revenue rose by 5% to over $7.045 billion, higher than what analysts expected. The gross margin rose slightly to 47.5%, while the operating income was $2.063 billion. It cited the ongoing AI investments for its revenue and earnings growth.
Applied Materials annual revenue figure was also higher than expected. It made over $27.1 billion in the financial year, while the operating income was $7.9 billion.
Analysts expect the upcoming results to show that Applied Materials revenue rose by 6.7% to $7.16 billion. They anticipate that the forward guidance for the current quarter will be $7.2 billion and the annual one to be $30 billion.
Applied Materials’ earnings are also expected to be keep growing. The average earnings forecast is $2.3, higher than last quarter’s $2.13.
There are signs that AMAT is an undervalued company as it trades with a forward price-to-earnings ratio of 19.6, lower than the industry median of 30.
Applied Materials stock price analysis
The weekly chart shows that the AMAT share price has crashed from last year’s high of $255 to the current $180. It has also moved slightly below the 50-week and 25-week Exponential Moving Averages (EMA).
AMAT stock has also formed a descending channel, which is part of the bullish flag chart pattern, a popular continuation sign. Therefore, the stock will likely have a strong bullish breakout in the coming weeks as bulls target the key resistance level at $200. A break above that level will point to more gains, potentially to last year’s high of $254.
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