Applied Materials Stock Has Taken a Hit, But Its Potential Is Solid
Applied Materials, Inc. (NASDAQ:AMAT) has met considerable resistance over the past month. Applied Materials stock shares have been ranging in the $27.00-$28.00 range. But it was only in September that AMAT achieved its all-time record of $30.57. This has acted, as so often happens, as a barrier against further increases.
Yet, the market’s sentiment on Applied Materials stock can only be bullish. For those who’ve never heard of the company, AMAT stock has gained no less than 50.75% year to date. Even at its current range, the stock is near all-time highs. So, the question is what catalyst will help AMAT stock reach beyond the evident $30.00 barrier?
There are two bullish factors. The first is the next fourth-quarter earnings report, which is coming up on November 17. The second is the company’s growth potential in 2017. The two items put together suggest that, as some analysts have already established, AMAT stock should hit $33.00 per share—new record—before the end of this year.
The previous AMAT stock earnings report saw the company beat earnings per share (EPS) estimates. It reported $0.50 EPS against a consensus estimate of $0.47. Revenue expectations were on target ($2.82 billion actual vs. $2.84 estimated). But it’s what lies behind the numbers that turns doubters into Applied Materials bulls.
Applied Materials Has Few Competitors and Many Potential Customers
Applied Materials faces limited competition, yet it has a wide market potential. Some AMAT shareholders and close observers may have developed reservations over the company’s potential because of the recent Samsung Electronics Co Ltd battery explosion debacle. Samsung has recalled all of its top-of-the-line “Galaxy Note 7” smartphones because a number of users have experienced fires, sometimes aboard airplanes.
Given that AMAT makes semiconductors and displays for smartphones, some may have correlated the two, expecting demand for AMAT products to drop. But, while Samsung has pulled one of its models—albeit the top one—from the market, there are plenty of others ready to fill the void. Indeed, AMAT has not altered its favorable outlook on the demand for its organic light-emitting diode (OLED) displays from smartphone-makers in 2016 and 2017. (Source: “Applied Materials Shares Soar 8% On Strong Forecast,” Fortune, May 19, 2016.)
If anything—apart from Apple Inc. (NASDAQ:AAPL), whose shares soared on the prospect that many Galaxy Note 7 users would switch to the “iPhone”—smartphone companies will enjoy a rare hiatus, marked by less intense competition, to be able to make their own mark. The next few months will give a chance to companies such as Xiaomi or HTC Corporation to catch up and develop something special of their own. That something might well be based on AMAT’s special “organic” displays.
Semiconductors Are Changing and Applied Materials Stands to Gain
There are big changes coming to semiconductors and memory technology in general. AMAT occupies a protagonist role in advancing this technology, made possible by its expertise in developing new materials. This is what is making flexible—”organic”—mobile phones and devices possible.
This is what the next major revolution in handset design will be about. Bendable and foldable displays are coming, and demand for AMAT’s technology will increase. (Source: “Applied Materials CEO: ‘Bendable, foldable, flexible’ displays in the future,” CNBC, September 22, 2016.)
Applied Materials can also expect higher demand for its 3D NAND flash memory products. That is, until recently specialized technology is ready to make a big move into the mainstream. AMAT is one of the specialists, and stands to profit from this in 2017. (Source: “We Believe Applied Materials’ Silicon Equipment Market Share Will Improve,” Forbes, October 4, 2016.)
Semiconductor advancements and new materials are always of interest to defense contractors. The next president of the United States will likely devote more proceeds to it from higher defense budgets. The next few years are looking decidedly bullish for Applied Materials.