Is Applied Materials Stock a Buy as AI Chip Manufacturing Surges?

Core Insights - The semiconductor market is experiencing significant growth driven by the rise of artificial intelligence (AI), benefiting both AI-focused chipmakers like Nvidia and semiconductor equipment manufacturers like Applied Materials [1][2]. Company Overview - Applied Materials is a leading supplier of semiconductor manufacturing equipment, generating 73% of its revenue from semiconductor systems, 23% from related services, and 4% from display and adjacent markets [4]. - The company has seen its stock rise nearly 270% over the past five years, outperforming the S&P 500, which has nearly doubled during the same period [2]. Financial Performance - Revenue growth for Applied Materials has fluctuated over the past five years, with semiconductor systems revenue growth declining from 43% in FY 2021 to just 1% in FY 2024, before recovering to 9% in the first nine months of FY 2025 [5]. - Total revenue growth also decelerated, from 34% in FY 2021 to 2% in FY 2024, with a projected growth of 7% in the first nine months of FY 2025 [5]. - Analysts expect revenue and adjusted EPS to grow by 4% and 8% respectively in FY 2025, and by 3% and 1% in FY 2026 [11]. Market Dynamics - The AI market's growth, recovery in the memory market, stabilization of the supply chain, and lower interest rates are key catalysts for Applied Materials' recent growth [7]. - The company is well-positioned to benefit from the ongoing competition for AI leadership among companies and countries [9]. Investment Considerations - Despite its strong performance, Applied Materials is not solely an AI stock, as it is exposed to various other markets, including significant revenue from China, which accounted for 30% of its revenue in the first nine months of FY 2025 [12]. - The stock may still be worth considering for investment, particularly at a lower valuation, but alternatives like ASML, which specializes in high-end lithography systems, may offer better exposure to the AI chipmaking boom [13].