Why Applied Materials rose 22.7% in February

Semiconductor capital equipment manufacturer stocks Applied materials (really 2.31%) It rose 22.7% in February, according to data from S&P Global Market Intelligence. As the most diversified semi-cap equipment supplier, Applied generally serves as a good indicator of the health of the overall semiconductor industry.

Applied’s February 15 report comes at a time when conflicting stories are emerging throughout the semifinals. Large, mature industries such as PCs and smartphones are in a prolonged slump. And demand for electrification and electric vehicle (EV) trailing edge chips is just beginning to decline. However, demand for artificial intelligence (AI) chips is increasing noticeably, and China is strategically purchasing cutting-edge equipment.

Applied’s results seemed to indicate that the worst could be behind the industry, with its stock rising on the tantalizing potential of an AI-led recovery.

Share your profits and the rise of Sam Altman’s crazy vision

In the fiscal first quarter, Applied reported revenue of $6.7 billion, roughly flat from the previous year, and adjusted (non-GAAP) earnings per share (EPS) increased 5% to $2.13. Both figures were well ahead of expectations, with guidance for next quarter being $6.5 billion, down from the previous quarter but ahead of analysts’ expectations of $6.3 billion.

Sales of equipment for producing AI chips and memory surged in the quarter, along with sales to China, despite softness in other end markets. However, many believe that the PC and smartphone markets may be poised for a recovery. This is especially true as PC and phone purchases become obsolete in the year of the pandemic and AI-powered devices hit the market next year.

Executives also pointed out how well Applied can capture market share amid current and future technological changes, including gate-all-round transistors, back-side power, and advanced packaging that are critical to creating the next generation of AI chips.

And even before the positive report, Applied’s stock rose after OpenAI CEO Sam Altman was reported to be seeking to raise trillions of dollars in funding for a new AI chip manufacturing venture. Yes, to a “T” that’s trillions of dollars. Altman, who appears to believe the world will need a lot more chip manufacturing plants to support his vision of the future of AI, may have encouraged investors to raise expectations for increased demand for Applied Materials machines in the coming years. .

One of the best compounds in the industry

Despite surging to an all-time high in February, Applied still trades at just 25 times earnings. And that trailing return is likely the low point of the last cycle.

Applied’s revenue is sure to grow from here as the overall industry recovers from the post-pandemic slowdown. The biggest issue is the intensity and duration of recovery. If the artificial intelligence revolution adds a significant increase in demand for semiconductors, as Sam Altman believes, Applied’s next growth spurt could be stronger than the historical semiconductor boom.