Applied Materials stock has 19% upside, according to one Wall Street analyst.

stock Applied materials (really 0.72%) Although it has already surged 73% in the past 12 months, analysts at Bernstein still see potential for a further 19% rise in the next 12 months. Earlier this week, the asset management company maintained its Outperform Return (Buy) rating and raised its price target on the stock from $230 to $240. The stock is currently trading at around $202 per share.

Why is Applied Materials stock price rising?

Applied Materials is a leading supplier of equipment used to manufacture silicon wafers for the chip industry. The company’s quarterly sales growth has stalled in 2022, but the improving industry outlook has made some analysts on Wall Street more optimistic about the stock’s outlook.

Investment in cutting-edge logic chips used in artificial intelligence (AI) can be a growth catalyst. AI currently only contributes about 6% to new wafer production, but is expected to grow by more than 30% annually over the next few years.

Nonetheless, the business is still in recovery mode, as management’s guidance projects sales to be down about 2% year-over-year in the company’s fiscal second quarter ending in April.

Investors are betting that the company’s growth is on the verge of a major acceleration due to interest in AI chips and other markets that could fuel Applied Materials’ business in the coming years. The company’s earnings per share are expected to grow 15% annually over the next five years, according to Wall Street consensus.

Shares of Applied Materials aren’t cheap, as they trade at a forward price-to-earnings ratio of 24. This is a historically fair assessment of Applied Materials. Almost all of stock returns over the past year have been driven by investors paying higher P/Es for stocks. Investors should expect the stock to perform in line with the company’s underlying earnings growth from here.