Last Update 31 Oct 25
Fair value Increased 1.53%Applied Materials' analyst price target has increased modestly from $215 to $218, as analysts point to anticipated upside from wafer fab equipment demand and improving order visibility in the semiconductor capital equipment sector.
Analyst Commentary
Analysts have provided a broad range of perspectives on Applied Materials in recent research, reflecting both optimism around growth drivers and caution about near-term risks within the semiconductor capital equipment sector.
Bullish Takeaways- Bullish analysts see significant order upside and improving momentum driven by strong wafer fab equipment demand. This view is particularly strong following industry events that signaled continued investment across the sector.
- Several recent price target increases point to confidence in Applied Materials' capacity to capture leading-edge foundry and logic opportunities, supporting long-term growth and valuation upside.
- Despite underperformance year-to-date, some see the stock's risk/reward profile as attractive given muted sentiment and anticipated catalysts in both mature and leading-edge technologies.
- Exposure to secular trends, such as increased U.S.-based chip production and structural technology shifts, positions Applied Materials favorably for outperformance, according to bullish commentary.
- Bearish analysts remain cautious about headwinds associated with customer digestion in China. They note that volatility in this market is clouding visibility into future earnings and execution.
- Concerns are highlighted around slower-than-expected uptake for leading-edge nodes and the impact of potential overcapacity driven by recent pull-ins from Chinese customers, which could weigh on results for several quarters.
- Some point to unique share pressures within China, especially for large new projects, as competitive dynamics intensify and visibility on incremental growth remains limited.
- Weakness across major end markets, including PCs, smartphones, and consumer electronics, may offset AI-driven demand and could challenge sustained growth in the near term.
What's in the News
- Chinese company E-Town has filed a lawsuit in Beijing against Applied Materials, alleging trade secret theft related to proprietary plasma technologies and seeking 100 million yuan in damages (Bloomberg).
- Applied Materials and Arizona State University officially opened the $270 million Materials-to-Fab Center in Tempe, which is designed to accelerate research, prototyping, and workforce development in semiconductor manufacturing.
- Applied Materials unveiled new semiconductor manufacturing systems intended to advance AI chip technology. These include integrated hybrid bonding and advanced metrology tools.
- The company announced a strategic collaboration with GlobalFoundries to develop a waveguide fabrication facility in Singapore. This initiative is aimed at accelerating the development of photonics technologies for next-generation AI applications.
- Applied Materials, together with JBD and RayNeo, achieved a breakthrough in full-color waveguide AR glasses. This advancement results in improved image quality and user experience in consumer AR devices.
Valuation Changes
- Consensus Analyst Price Target has risen slightly from $215.06 to $218.35, reflecting modest analyst optimism.
- Discount Rate has increased marginally from 10.20% to 10.25%, indicating a slightly higher perceived risk or cost of capital.
- Revenue Growth expectation has edged down from 5.05% to 5.04%, showing a negligible decrease in anticipated top-line expansion.
- Net Profit Margin projection is almost unchanged, shifting minimally from 27.47% to 27.46%.
- Future P/E ratio has risen from 23.60x to 24.00x, suggesting a modest uptick in valuation multiples assigned to the company’s future earnings.
Key Takeaways
- Leadership in materials engineering and advanced packaging positions the company to benefit from AI-driven semiconductor demand and global manufacturing expansion.
- Growing recurring revenues and deep customer collaboration provide margin resilience and support long-term financial growth amid industry transitions.
- Heavy reliance on a few major customers and regions, along with geopolitical and industry volatility, threaten revenue stability and intensify competition risks.
Catalysts
About Applied Materials- Engages in the provision of manufacturing equipment, services, and software to the semiconductor, display, and related industries.
- Structural growth in AI and high-performance computing is reshaping semiconductor demand, driving heavy investments in advanced chip architectures such as gate-all-around (GAA) transistors, high-bandwidth memory (HBM), and advanced packaging. Applied is set to benefit from these device inflections due to its leadership in materials engineering and strong customer adoption of new process technologies, which are expected to deliver outsized revenue and market share gains as these nodes ramp from 2026 onward.
- The ongoing explosion in data creation and rapid adoption of digital transformation (IoT, automotive, industrial automation) continue to accelerate wafer fab buildouts globally-over 100 new fabs or expansions tracked this year-with Governments incentivizing regional manufacturing. Applied's broad portfolio and investments in local manufacturing infrastructure (e.g., new Arizona and EPIC centers) position it to capture a greater share of this growing and more geographically diverse capital expenditure, supporting both revenue growth and margin resilience.
- Advanced packaging remains Applied's area of highest market share, bolstered by strong customer collaboration and a growing pipeline of new hybrid bonding and integration technologies. The packaging segment is on track to more than double to over $3B in annual revenue in the next few years, which will meaningfully boost recurring revenue and expand overall net margins given the higher margin profile of these offerings.
- Recurring revenues from services and spares now comprise over two-thirds of the service segment's income, and the installed base continues to expand with each leading-edge and memory ramp. This increases earnings visibility, supports stable net margins, and buffers against near-term cyclicality or regional slowdowns, providing a more resilient financial profile.
- Despite current short-term uncertainty due to China digestion and fab order linearity, Applied's deep engagement and early-stage co-innovation with leading customers at major architecture transitions gives confidence that the company will capture incremental share and revenue as the AI wave, memory upgrade cycles, and advanced module integration all accelerate over the next several years, driving robust long-term EPS and revenue growth.
Applied Materials Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Applied Materials's revenue will grow by 4.3% annually over the next 3 years.
- Analysts assume that profit margins will increase from 23.9% today to 28.3% in 3 years time.
- Analysts expect earnings to reach $9.2 billion (and earnings per share of $11.94) by about September 2028, up from $6.8 billion today.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.4x on those 2028 earnings, up from 19.1x today. This future PE is lower than the current PE for the US Semiconductor industry at 33.5x.
- Analysts expect the number of shares outstanding to decline by 3.37% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 10.18%, as per the Simply Wall St company report.
Applied Materials Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Ongoing geopolitical tensions and export license uncertainties-especially with China, Applied's largest market-create persistent risks to revenue visibility and market share; prolonged delays or restrictions on export licenses could lead to a significant, sustained revenue decline from this region.
- High customer concentration in leading-edge logic (foundry/logic) and memory, with order linearity heavily tied to a few dominant customers, increases vulnerability to demand swings and capital spending delays, impacting both revenue stability and earnings visibility.
- Volatility and digestion cycles in end markets, particularly in China and mature node ICAPS, as well as muted leading-edge investment timing, could result in near
- to medium-term revenue and margin contraction as long as excess fab capacity persists.
- Increasing R&D investment-necessary to compete at AI and advanced technology inflections-comes with risk that escalating expenses may not translate into proportionate, timely revenue growth if delayed customer adoption or execution missteps occur, compressing future net margins.
- Intensified global competition, including from emerging Asian semiconductor equipment firms, combined with potential technological paradigm shifts and uncertainties around new markets, threatens long-term pricing power, share gains, and future revenue expansion.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $194.903 for Applied Materials based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $240.0, and the most bearish reporting a price target of just $160.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $32.5 billion, earnings will come to $9.2 billion, and it would be trading on a PE ratio of 20.4x, assuming you use a discount rate of 10.2%.
- Given the current share price of $163.5, the analyst price target of $194.9 is 16.1% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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