Applied Materials, Inc.: Triple Threat Could Send AMAT Stock Soaring

Applied MaterialsAMAT Stock Is Back

Applied Materials, Inc. (NASDAQ:AMAT) is the world leader in the production of semiconductor and display equipment. Applied Materials is the 800-pound gorilla in this industry. Given its size and stature, AMAT stock has not been able to match its 2000 tech bubble high and currently sits 46% below it.

There is a silver lining to this story, though. Strong product demand and growth in China has reinvigorated investor demand. AMAT stock is up 12.8% after the Brexit sell-off and up 36% year-to-date, outperforming its peers in the process.

The following three factors create a triple threat that could send shares of AMAT stock soaring:

1. Growth…Growth… GROWTH

Applied Materials reported exceptional second-quarter earnings results. The company beat earnings expectations both on the top and bottom line. It was able to generate $3.5 billion in new orders, which was its highest level in 15 years. Management expects record earnings in fiscal year 2016. As well, these strong Q2 results and upbeat management expectations have led to a number of analyst upgrades.

Growth in the demand for products like the “OLED” and 3D flash has been at the forefront, driving revenue growth. Strong growth in order demand from regions like China and Korea was a pleasant surprise, suggesting strength in the Asia markets.

2. Rising Tide

It is satisfying to note that the U.S. equity markets are making all-time highs. Global government policies, which use quantitative easing programs to stem economic weakness and provide growth, have led to a new era of negative interest rates in Europe. Investors seeking yield and returns have caused global assets and equity markets to appreciate.  This phenomenon is causing a rising tide, and rising tides lift boats.

Applied Materials will benefit from this rising tide in many ways. AMAT stock has been outperforming its peers. Shares are up 36% year-to-date, while the benchmark semiconductor index is up eight percent. This is exceptional relative strength. The company also announced a $2.0-billion stock repurchase plan on the heels of a $3.0-billion repurchase plan announced in 2015. All these factors act as a backwind that could propel the share price of AMAT stock higher.

3. AMAT Stock’s Price Chart

Shares of AMAT stock have been trending higher since it bottomed in 2009. Strong monthly resistance stood at $25.00. This marks a resistance level that stood for 15 years and is currently being challenged.

Applied Materials, Inc. NASDAQ Chart

Chart courtesy of www.StockCharts.com

A confirmed break above $25.00 will set up a move into the mid $30.00s. Above $25.00, true resistance only exists at the 2000 tech bubble high around $45.00. A test of that high is expected, since the path of least resistance is higher.

The Bottom Line on AMAT Stock

Each factor listed above could give rise to higher prices for AMAT stock. The company fundamentals are outstanding and the general path of least resistance is towards higher prices. These factors together as a triple threat could help AMAT stock soar.