Applied Materials gains on upbeat forecast as rising AI adoption drives chip tools demand

By Thomson Reuters Feb 16, 2024 | 6:17 AM

(Reuters) – Applied Materials shares rose 13% in premarket trading on Friday after the semiconductor equipment supplier forecast a better-than-expected second quarter on strong demand from customers looking to make AI-enabled chips.

The outlook was also supported by improvement in certain electronics end-markets like smartphones and personal computers, and analysts highlighted a diversified portfolio that sets up the company for further gains.

“Applied is well-positioned to benefit from multiple upcoming technology inflections that should drive outperformance vs WFE (wafer fab equipment) over the next several years,” said analysts at J.P. Morgan.

Applied Materials forecast second-quarter revenue of $6.5 billion, plus or minus $400 million, and adjusted profit per share of $1.79 to $2.15 or the quarter ending April, above market expectations.

It also topped expectation for first-quarter revenue.

The company’s stock was trading at $212 and on track to hit a fresh record high on Friday, if premarket gains hold. Shares have gained close to 16% this year, as of Thursday close.

“Management noted recovery in utilization across leading edge logic and memory customers which increases our confidence in “V” shaped recovery,” said analysts at Jefferies.

Applied Materials, which supplies to Intel and Samsung among others, expects high-bandwidth memory (HBM) packaging revenues to be four times larger than last year.

HBM packaging uses a special stacking arrangement of memory chips for better performance and is suitable for high-performance computing.

At least four analysts raised their ratings and eight bumped up their price targets, according to LSEG data.

Currently, the stock is valued at 22.77 times its one-year forward earnings, compared with the industry average of 25.17.

(Reporting by Yuvraj Malik in Bengaluru; Editing by Sriraj Kalluvila)