Should AMAT Stock be Part of Your Portfolio Ahead of Q4 Earnings?

Applied Materials AMAT is scheduled to report fourth-quarter fiscal 2024 results on Nov. 14.For the fiscal fourth quarter, AMAT expects net sales of $6.93 billion (+/-$400 million). The Zacks Consensus Estimate for revenues is pegged at $6.94 billion, suggesting a rise of 3.2% from the year-ago quarter’s reading.Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.Applied Materials projects non-GAAP earnings in the range of $2.00-$2.36 per share. The Zacks Consensus Estimate for earnings is pegged at $2.18 per share, indicating growth of 2.8% from the year-ago quarter’s reported figure. The figure has been unchanged over the past 60 days.Image Source: Zacks Investment ResearchAMAT has an impressive earnings surprise history. In the last reported quarter, the company delivered an earnings surprise of 5.5%. Its earnings beat the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 7.7%.Applied Materials, Inc. Price, Consensus and EPS Surprise Applied Materials, Inc. price-consensus-eps-surprise-chart | Applied Materials, Inc. QuoteEarnings Whispers for Applied MaterialsOur proven model does not conclusively predict an earnings beat for Applied Materials this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.Though AMAT carries a Zacks Rank #3, it has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.Factors to Influence Applied Materials’ Q4 ResultsApplied Materials’ technology leadership in leading-edge logic, compute memory or high-performance DRAM, stacking technology and advanced packaging is expected to have helped it capitalize on the growing proliferation of artificial intelligence (AI), which is the main reason behind the rebound in the semiconductor industry this year.Increasing demand for sophisticated chips required to power AI-centric data centers is expected to have aided the performance of the company’s Semiconductor Systems segment in the fiscal fourth quarter. Its strong capabilities in logic and solid position in DRAM patterning are likely to have acted as boons. Its patterning systems and technologies, which are designed to address the shrinking pattern dimension challenges and the growing complexity in vertical stacking, are likely to have benefited the segment.AMAT’s manufacturing equipment, which helps improve the performance, power, yield and costs of semiconductor devices that serve the IoT, communications, automotive, power and sensors markets, is likely to have contributed well to the top-line growth of the segment.However, the escalating tensions between the United States and China do not bode well for semiconductor companies. These are likely to have hindered the top-line growth of the segment. Changes in the spending patterns of key customers and supply-chain constraints are likely to have been other headwinds. For the fourth quarter of fiscal 2024, the company’s sales projection for Semiconductor Systems is pegged at $5.1 billion. The Zacks Consensus Estimate is pegged at $5.11 billion, indicating growth of 4.6% from the year-ago quarter’s actual.Applied Materials’ growing 200-millimeter business and solid momentum among long-term service agreements are likely to have driven sales growth in its Applied Global Services (“AGS”) segment in the quarter under review. Strengthening of the subscription business is likely to have been another tailwind. For the fourth quarter of fiscal 2024, Applied Materials’ projection for AGS sales is pegged at $1.61 billion. The Zacks Consensus Estimate is also pegged at $1.61 billion, indicating growth of 9.5% from the year-ago quarter’s reported figure.However, weak spending in the LCD equipment market is likely to have hurt Applied Materials’ Display and Adjacent Markets segment sales in the to-be-reported quarter. For the fourth quarter, it projects revenues of around $200 million from this segment. The consensus mark for the Display and Adjacent Markets segment’s fourth-quarter revenues is pegged at $200.2 million, implying a year-over-year decline of 32.8%.Applied Materials’ Price Performance & ValuationApplied Materials shares have risen 16.5% on a year-to-date (YTD) basis, outperforming the Zacks Semiconductor Equipment - Wafer Fabrication industry’s decline of 1.9%. However, the stock has underperformed the Zacks Computer and Technology sector and the S&P 500 index’s YTD rise of 29.6% and 26.4%, respectively.Compared with other industry peers, Applied Materials stock has outperformed ASML Holding ASML, Lam Research LRCX and Advanced Energy Industries AEIS. Shares of ASML and Lam Research have plunged 11.5% and 2.7%, respectively, while Advanced Energy Industries stock rose 7.5% YTD.YTD Price Return PerformanceImage Source: Zacks Investment ResearchLet us now look at the value Applied Materials offers to its investors at current levels. AMAT is currently trading at a discount with a forward 12-month price-to-earnings (P/E) of 19.7X compared with the industry’s 23X. Industry peers, such as ASML Holding, Lam Research and Advanced Energy Industries, have a forward 12-month P/E of 26.77X, 20.39X and 25.72X, respectively.Image Source: Zacks Investment ResearchInvestment Thesis on Applied MaterialsApplied Materials’ business continues to be on a growth trajectory with significant design wins. It is well-poised to capitalize on the technology-inflection-led growing demand for next-generation chips on the back of its product innovations and leadership in leading-edge logic, compute memory, high bandwidth memory and advanced packaging. Given that AI has become mainstream in several industries and sectors, the company’s strategic pivot toward technology is a major positive.However, Applied Materials faces near-term challenges that could impact its stock. The U.S.-China trade tensions, particularly the restrictions on high-tech exports to China, have created uncertainties for companies operating in the semiconductor industry. AMAT’s reliance on China for a significant portion of its revenues makes it vulnerable to geopolitical risks, especially as China pushes for self-sufficiency in critical industries like semiconductors.Conclusion: Hold AMAT Stock for NowDespite the near-term headwinds, Applied Materials' leadership in semiconductor manufacturing technology, strong market position and discounted valuation make it a solid stock to hold for long-term investors. While the company may face challenges related to trade tensions and increasing competition, its long-term growth prospects remain bright due to the rising demand for advanced chips and continued innovation in semiconductor manufacturing processes.For investors already holding AMAT stock, maintaining the position seems prudent as the company is well-positioned to benefit from the ongoing digital transformation across industries. Holding Applied Materials allows for potential gains as these long-term trends play out.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report ASML Holding N.V. (ASML): Free Stock Analysis Report Lam Research Corporation (LRCX): Free Stock Analysis Report Applied Materials, Inc. (AMAT): Free Stock Analysis Report Advanced Energy Industries, Inc. (AEIS): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks