Can AMAT Maintain Strong Margins Amid Rising R&D Expenses?

Core Insights - Applied Materials (AMAT) is significantly increasing its R&D investments, including the establishment of a new research center expected to be operational by 2026 [1] - The company is effectively managing its general and administrative expenses to maintain operating margins despite rising R&D costs, with a non-GAAP operating margin expansion of 190 basis points in Q3 fiscal 2025 [2][9] - AMAT achieved a gross margin of 49.2% in Q2 fiscal 2025, the highest since 2000, driven by high-margin products [3][9] - Strong demand for high-performance computing and AI is expected to support AMAT's margins, with projected gross margin expansion of 120 basis points and operating margin expansion of 100 basis points for fiscal 2025 [4] - AMAT faces competition from Lam Research and ASML Holding, both of which have shown growth in their margins [5] - Lam Research reported a record gross margin of 50.3% and an operating margin of 33.7% in Q4 fiscal 2025, while ASML anticipates lower gross margins in the second half of the year [6] - The semiconductor manufacturing equipment market is projected to grow at a CAGR of 7.3% from 2024 to 2029, which will benefit AMAT [7] - AMAT's shares have gained 0.4% year-to-date, underperforming the Electronics - Semiconductors industry, which has grown by 37.4% [8] - The company trades at a forward price-to-sales ratio of 4.48X, below the industry average of 9.66X [10] - The Zacks Consensus Estimate indicates year-over-year earnings growth of 8.55% for fiscal 2025, with a slight downward revision for fiscal 2026 [11]