Applied Materials shares fell following the earnings report. Analysts advise taking advantage of this opportunity

Shares of Applied Materials, a supplier of semiconductor manufacturing equipment, fell by more than 5% following the release of its quarterly earnings report yesterday. Analysts explain that the market was likely expecting more from the forecasts for the current quarter. In their view, investors should take advantage of this dip to buy shares, according to MarketWatch.

— Analysts at KeyBanc Capital Markets noted that the decline in Applied Materials’ stock may be linked to the company’s outlook for the next quarter. It expects third-quarter revenue to reach $10.36 billion, which would represent year-over-year growth of more than 50%. However, investors have come to hold artificial intelligence-related companies to extremely high standards. The bank noted on August 14 that, in the short term, Applied Materials will face pressure on its gross margin due to increased capital expenditures, which may also have concerned investors. However, according to KeyBanc, these two factors present “an opportunity for investors who understand the implications of doubling production capacity for revenue and earnings per share against the backdrop of what is likely the strongest growth driver the industry has ever seen.”

— JPMorgan raised its price target for Applied Materials shares from $515 to $660, anticipating a 30% increase from the closing price on August 14. According to the bank, the company’s growth over the next three years is likely to be driven by increased market share, expansion of its product portfolio, new revenue streams, sales growth to existing customers, higher equipment spending by manufacturers per silicon wafer, and Applied Materials’ presence in the display equipment market.

— Jefferies maintained its 2027 price target for the stock at $770 after raising it from $510 in late June. “We believe the results confirm both the scale and sustainability of Applied Materials’ growth driven by the AI boom and set the stage for another strong year in calendar 2027,” MarketWatch quotes the bank’s note as saying.

— The key takeaway from Applied Materials’ report and conference call was the company’s intention to double its equipment production capacity by 2028, according to a note from UBS analysts cited by The Wall Street Journal. “We find it hard to believe that Applied Materials will face excess capacity in calendar year 2028, given that its largest customers are providing the company with demand visibility for 8–10 quarters ahead,” they note. UBS estimates that by the end of 2028, quarterly revenue from the chip equipment business could reach about $14 billion. This could boost earnings per share to nearly $30, and the potential for further growth will remain, the bank notes.

A total of 33 out of 41 analysts covering Applied Materials recommend buying the stock, according to MarketWatch. The remaining eight recommend holding the stock in their portfolios. Wall Street’s consensus price target is $649, which is 28% higher than the closing price on August 14.

This article was AI-translated and verified by a human editor