Last Update03 Oct 25Fair value Increased 2.09%
Applied Materials' analyst price target has increased by approximately $4 to $199, as analysts cite stabilizing risk and reward dynamics and expectations for improving revenue growth, despite ongoing concerns about demand headwinds and China exposure.
Analyst Commentary
Recent research reflects a divided outlook on Applied Materials, with both supportive and cautious perspectives emerging from the Street. The following summarizes the main points from recent analyst notes:
Bullish Takeaways- Bullish analysts are increasing price targets, some to as high as $220, citing favorable risk and reward conditions and improving expectations for revenue growth in upcoming quarters.
- Despite short-term headwinds, the company is viewed as well positioned to benefit from secular trends such as increased wafer fab equipment spending and high bandwidth memory demand. These factors are projected to drive growth through 2025 and beyond.
- The current underperformance relative to peers is seen as potentially setting up an attractive entry point. Sentiment is described as muted but poised for improvement on catalysts tied to leading-edge technologies.
- There is expectation that U.S. policy shifts and a renewed push for domestic chip production could ultimately favor U.S.-concentrated semiconductor equipment makers like Applied Materials over time.
- Bearish analysts express concern over ongoing demand headwinds and weaker-than-expected guidance, particularly connected to China, where digesting pulled-in demand and increased domestic competition could pressure near-term results.
- Lowered price targets and neutral or hold ratings have been assigned due to share losses in specific product lines, especially physical vapor deposition, and uncertainty regarding customer activity in China.
- Potential volatility associated with the macro environment, continued U.S. export restrictions, and muted demand across consumer and industrial segments are cited as risks that could limit upside in the near term.
- Visibility into core earnings potential remains clouded, leading to a cautious stance on valuation and the outlook for Applied Materials' execution in the face of global competition.
What's in the News
- Applied Materials was sued by Chinese chip equipment supplier E-Town in Beijing, accused of trade secret theft related to plasma technologies, with E-Town seeking about 100 million yuan in damages (Bloomberg).
- Applied Materials announced a strategic collaboration with GlobalFoundries to establish a waveguide fabrication facility in Singapore. The initiative aims to accelerate photonics development for next-generation AI and AR applications.
- JBD, RayNeo, and Applied Materials achieved a breakthrough in full-color waveguide AR glasses technology. This led to improved display quality and a commercial launch in the RayNeo X3 Pro.
- Applied Materials joined the global semiconductor consortium ‘JOINT3’ along with 26 major firms to advance organic interposer technology for next-generation semiconductor packaging.
- Applied Materials provided fiscal year 2025 earnings guidance, expecting total revenue of $6.7 billion, plus or minus $500 million.
Valuation Changes
- Fair Value has risen slightly from $194.90 to $198.97, reflecting analyst optimism about Applied Materials' prospects.
- Discount Rate increased marginally, moving from 10.18% to 10.25%. This indicates a minor adjustment to perceived risk factors.
- Revenue Growth expectations improved, up from 4.31% to 4.90%. This points to slightly stronger anticipated top-line expansion.
- Net Profit Margin has edged down, decreasing from 28.32% to 28.03%. This suggests a more cautious outlook on near-term profitability.
- Future P/E ratio has increased from 20.36x to 21.52x, signaling a higher valuation multiple being applied to projected 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.
How well do narratives help inform your perspective?
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.
Read more narratives
US$160.41
FV
35.6% overvalued intrinsic discount3.85%
Revenue growth p.a.
0users have liked this narrative
0users have commented on this narrative
5users have followed this narrative
US$247.37
FV
12.1% undervalued intrinsic discount7.76%
Revenue growth p.a.
0users have liked this narrative
0users have commented on this narrative
7users have followed this narrative
US$194.11
FV
12.1% overvalued intrinsic discount7.00%
Revenue growth p.a.
0users have liked this narrative
0users have commented on this narrative
14users have followed this narrative