From Seeking Alpha
Applied Materials dips after Q2 revenue outlook to see China impact, analysts largely positive
Feb. 14, 2025 8:01 AM ET
Applied Materials, Inc. (AMAT) Stock
LRCX, ASML, KLACBy: Ravikash Bakolia, SA News Editor
Shares of Applied Materials (NASDAQ:AMAT) fell about 5% premarket on Friday after first quarter fiscal 2025 results beat estimates but second quarter revenue outlook came below estimates.
However, Wall Street analysts were largely positive on the company.
KeyBanc Capital Markets maintained its Overweight rating and $225 price target on the shares of Applied Materials, which develops chip making equipment.
Analysts led by Steve Barger said Applied Materials reported fiscal first quarter EPS that was 4% above consensus on in-line revenue, and guided midpoint fiscal second quarter EPS in line with consensus on revenue that is 2% below. The analysts think this guidance profile mirrors what they have seen from other names and expect it reflects some conservatism around this slowly evolving cycle.
However, the analysts added that Applied Materials sounded confident about forward trends, andthat its strong positioning in deposition, etch, and materials science makes it integral to supporting leading edge, and ICAPS (IoT, Communications, Automotive, Power and Sensors) customers.
For leading edge foundry/logic, the analysts think it faces increasing total addressable market, or TAMs, as the industry embraces node transitions around Gate-All-Around, or GAA, and advanced memory, and newer technologies such as backside power delivery, hybrid bonding, and silicon photonics.
Barger and his team think these new architectures will play critical roles in improving compute performance, increasing data transfer speeds, and optimizing power efficiency, all of whichwill be critical to AI and high-performance computing, or HPC, scaling.
The company, however, noted that new trade restrictions with China would have around $400M impact in fiscal year 2025, half of which will affect fiscal second quarter, and noted that China exposure would drop to about 25% this quarter, the analysts added.
Barger and his team noted that while they were making modest adjustments to their model, they (the analysts) remain above consensus and expect upside to estimates over time as the cycle inflects and the company gains share around new technologies.
Evercore kept its Outperform rating on Applied Materials but reduced the target price on the stock to $220 from $250.
Analyst Mark Lipacis and his team said Applied Materials beat January quarter (fiscal first quarter) on slightly better revenues and higher margins. The company's stock fell after April quarter revenue came 170bps below street estimates, driven by 20% quarter-over-quarter decline in China revenue with about $200M impact from China restrictions.
Lipacis and his team forecast that the company's 2025 revenue would grow 5% year-over-year (1% below prior expectations) driven by — $400M impact from China restrictions; GAA technology accelerating; Continued demand for advanced packaging; and ICAPS weakness.
Meanwhile, Morgan Stanley reiterated its Underweight rating and a $164 price target on Applied Materials.
Analysts led by Joseph Moore said Applied Materials continues to post "solid" results, but guidance is slightly below consensus. However, there is growing uncertainty around export controls, and trailing edge remaining strong even as trailing edge customers struggle remains a risk, the analysts added.
BofA Securities kept is Buy rating but lowered the price target to $205 from $210.
Analysts led by Vivek Arya said they reiterated the Buy rating noting — impact from restrictions was long anticipated and now largely out of the way post fiscal second quarter with Applied Global Services, or AGS, returning to growth in fiscal third quarter; and digestion in ICAPS and China also expected (and related) and now could remain steady/grow at manageable levels.
In addition, the analysts maintained the rating noting that the bulk of tech inflection growth across GAA, High-bandwidth memory, or HBM, etc. has yet to unfold, and they like the company's upbeat tone about potential share gains across most Wafer Fab Equipment, or WFE, markets supported by a diversified materials engineering portfolio; and because valuation remains undemanding.
Related stocks: KLA (KLAC) -1%, Lam Research (LRCX) -1%, ASML (ASML) largely flat premarket Friday.
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