TLDR
- RBC Capital begins coverage with Outperform rating and $385 price target on Applied Materials
- Stifel increases target to $340 from $250, maintains Buy rating on semiconductor equipment maker
- Analysts see strong growth potential in DRAM equipment spending over next 12 months
- Stock trades at 30x earnings, a 20% discount versus semiconductor equipment peers
- Company extends dividend growth streak to eight years with $0.46 quarterly distribution
Applied Materials caught the attention of two major Wall Street firms this week. The upgrades reflect growing confidence in the chip equipment manufacturer’s growth trajectory.
RBC Capital initiated coverage with an Outperform rating and $385 price target. Stifel raised its target from $250 to $340 while keeping its Buy rating. The stock trades around $302 currently.
RBC Capital analyst Srini Pajjuri sees particular strength in DRAM manufacturing equipment. This segment is poised to outpace the broader wafer fab equipment market in growth over the next year.
The stock gained 77% over the past 12 months. This performance came despite challenges from China market restrictions and weaker spending on mature semiconductor nodes.
Stifel highlighted Applied Materials’ comprehensive product portfolio as a competitive edge. The company can address more customer technology needs than many rivals in the equipment space.
Attractive Valuation Draws Interest
Applied Materials trades at 30 times earnings. This represents a 20% discount to other semiconductor capital equipment companies.
RBC Capital considers this valuation gap compelling. The firm sees a strong risk-reward balance at current price levels.
The company showed improved financial performance during the recent industry slump. Stifel expects this resilience to translate into higher revenue and profit peaks during the next growth cycle.
Applied Materials returned value to shareholders through its latest dividend announcement. The $0.46 quarterly payment marks eight consecutive years of dividend increases.
Technology Shifts Create Revenue Opportunities
Multiple technology transitions should fuel Applied Materials’ growth. Backside power delivery represents a major shift in chip manufacturing that requires new equipment.
Hybrid bonding technology opens another revenue stream. Advanced 3D transistor architectures also demand specialized manufacturing tools.
Applied Materials’ wide range of products positions it to benefit across these technology transitions. The current lack of merger activity in the sector makes this internal capability more valuable.
Other analysts also raised their outlooks recently. TD Cowen set a $315 target while KeyBanc Capital Markets established a $285 target on the stock.
UBS upgraded Applied Materials to Buy with a $285 target. The firm cited expectations for strong wafer fab equipment demand growth as its primary reason.
Analyst price targets range from $190 to $425. The stock trades near its 52-week high of $310.64.
Applied Materials maintains strong positions in key semiconductor manufacturing areas. DRAM memory production and cutting-edge foundry operations drive equipment demand.
Industry watchers expect wafer fab spending to rise over the next year. Applied Materials should match or exceed overall market growth during this period.
The company lost some market share last year in certain product categories. Competitive pressures and China-related issues contributed to these setbacks.
Analysts see multiple positive catalysts ahead despite near-term challenges. Technology transitions, reasonable valuation, and market leadership underpin the optimistic outlook.
RBC Capital noted Applied Materials outperformed the SOX semiconductor index last year. However, it lagged behind some U.S.-based equipment peers due to geographic and competitive factors.
Stifel emphasized the limited merger and acquisition activity in the semiconductor equipment sector. This environment favors companies with existing broad product portfolios like Applied Materials.
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