Will Rate Cuts And AI Benefit Applied Materials Stock?

Core Insights - Applied Materials stock has increased nearly 10% in the past month and approximately 30% year-to-date, outperforming its semiconductor peer Texas Instruments, which has gained about 22% this year [1] Group 1: Economic Factors - The Federal Reserve's recent interest rate cut of 50 basis points in September marks the first reduction in nearly four years, with the current benchmark rate at 4.75% to 5%, allowing for potential further cuts [2] - Lower interest rates reduce borrowing costs for manufacturers, making larger capital expenditure projects more feasible, which could increase demand for Applied Materials' semiconductor fabrication equipment [2] Group 2: Industry Trends - The semiconductor industry is stabilizing after a downturn, with Applied Materials reporting a 5% year-over-year revenue increase to $6.8 billion in Q3 2024, and earnings of $2.12 per share, exceeding expectations [3] - For Q4 FY'24, Applied Materials projects revenue of approximately $6.93 billion, with adjusted diluted earnings expected between $2.00 and $2.36 per share, indicating potential growth of up to 8.5% at the upper end of guidance [3] - The demand for logic chips is recovering alongside the PC market, and there is growing demand for GPUs from data centers, while the memory market is shifting towards advanced high-bandwidth memory driven by AI sector needs [3] Group 3: Company Performance - Over the past three years, Applied Materials' stock performance has been volatile, with returns of 84% in 2021, -38% in 2022, and 68% in 2023, contrasting with the more stable performance of the Trefis High Quality Portfolio [4] - Currently, Applied Materials stock trades at about $201 per share, with potential benefits from higher orders and a shift towards advanced equipment driven by AI applications, which is also improving the company's margins [4] - Gross margins increased by 100 basis points year-over-year to 47.3% in Q3 [4]