AMAT Rides on the Strength in Semiconductor Systems: Will it Last?

Applied Materials’ AMAT Semiconductor Systems segment is shining on the back of strong demand for foundry-logic, DRAM and NAND products. AMAT is experiencing strong wins in deposition, etch, and new DRAM solutions, leading to deliver record revenues in the third quarter of fiscal 2025.

Applied Materials’ Semiconductor Systems’ revenues touched $5.43 billion in the third quarter, up 10% year over year. Its long-term growth drivers include the growing usage of leading-edge logic, including gate-all-around and backside power delivery, growing demand for next-gen DRAM, advanced packaging and power semiconductors.

On its third-quarter fiscal 2025 earnings call, AMAT discussed that it expects revenues from leading-edge DRAM customers to increase approximately 50% in fiscal 2025. The company also discussed that the industry transition from FinFET to gate-all-around transistors with backside power delivery is expected to increase its revenue opportunity by 30% per fab capacity.

AMAT anticipates long-term tailwinds from AI, advanced packaging, and power electronics. However, AMAT’s fourth-quarter 2025 guidance is weaker, mainly due to capacity digestion in China, pending export license backlog, and non-linear demand from leading-edge customers due to market concentration and fab timing.

How Competitors Fare Against AMAT

Companies like Lam Research LRCX and ASML Holdings ASML are leading players in the DRAM, Logic and etching space. Lam Research’s Dynamic Random Access Memory and Non-Volatile Memory products are gaining traction on the back of AI. Lam Research is also winning multiple clients as DRAM manufacturers are using its latest conductor etch tool, Akara.

ASML Holdings’ top line is driven by its DRAM and logic customers, who are ramping leading-edge nodes using ASML’s NXE:3800E EUV systems. The company also delivers deposition and etching tools. However, ASML expects its gross margin to contract due to the revenue recognition from low-margin High Numerical Aperture EUV tools and lower upgrade revenues.

AMAT’s Price Performance, Valuation and Estimates

Shares of Applied Materials have declined 2.7% year to date compared with the Electronics - Semiconductors industry’s growth of 19.1%.

From a valuation standpoint, Applied Materials trades at a forward price-to-sales ratio of 4.32X, lower than the industry’s average of 8.81X.

The Zacks Consensus Estimate for Applied Materials’ fiscal 2025 and 2026 earnings implies year-over-year growth of 8.55% and 0.92%, respectively. The estimate for fiscal 2025 has been revised upward in the past seven days, while the estimate for fiscal 2026 has been revised downward in the past seven days.

Applied Materials currently carries a Zacks Rank #4 (Sell).

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This article originally published on Zacks Investment Research (zacks.com).

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