Why Applied Materials stock price soared 7%

Applied materials (really 7.12%) Shares rose 6.7% as of 10:20 a.m. ET Friday morning after the maker of equipment for semiconductor production reported better-than-expected first-quarter 2024 sales and earnings last night.

Ahead of its earnings release date, analysts expected Applied Materials to post revenue of $6.5 billion and earnings of $1.91. Applied achieved both goals, reporting more than $6.7 billion in revenue and $2.13 in earnings per share.

Applied Materials Performance Report

And the news just keeps getting better. It turns out that “$2.13” is just Applied Materials’ non-GAAP earnings. When calculated according to generally accepted accounting principles (GAAP), Applied Materials actually earned $2.41 per share.

The company’s revenue was actually down slightly compared to the first quarter of 2023. But with overall gross profit margins up 110 basis points (and operating margins up slightly as well), Applied Materials was able to turn a quarter with no sales growth into profits that were up 19% for the year. Over the course of a year.

How did that happen? Applied’s two largest business segments are selling manufacturing systems for semiconductors and providing “services” for those systems. The former was (and still is) generally a more profitable business. However, in the first quarter, Applied Materials saw significant improvement in operating margins in its services segment (up 310 basis points to 28.3%). Improved profitability in the services division appears to have given the company the boost it needs in profits.

Applied Materials Guidelines

And the news can get even better. Applied Materials told investors in its guidance that it expects second-quarter fiscal 2024 revenue to range from $6.1 billion to $6.9 billion. At the midpoint of $6.5 billion, that’s $200 million more in revenue than Wall Street had predicted.

The same goes for income. Analysts expect Applied Materials’ non-GAAP earnings to be just $1.79 per share. However, the company is driving non-GAAP profits. At least Available for $1.79, up to $2.15.

Translation: After outperforming in the first quarter, Applied Materials promised to outperform in the second quarter as well. No wonder investors are delighted.