AMAT Trades 54% Above Its 52-Week Low: Time to Hold or Fold the Stock?

Applied Materials AMAT stock is trading far above its 52-week low. In the year-to-date period, AMAT stock has climbed 3.1% compared with the industry’s return of 34.5%.

AMAT YTD Price Performance Chart

AMAT is also trading at a lower valuation than its industry. AMAT shares are trading at a forward 12-month P/E of 20.1X, which is lower than the Zacks Electronics - Semiconductors industry’s P/E of 36.76X.

AMAT Forward 12 Months P/E Valuation Chart

Although AMAT appears to be discounted, let's delve deeper into its fundamentals to understand if the valuation is justified or if it shows signs of weakness.

Key Factors Driving AMAT Stock

Applied Materials is experiencing a strong wave of momentum in the DRAM segment, as reported on the third-quarter fiscal 2025 earnings call. With artificial intelligence and high-performance computing reshaping semiconductor demand, DRAM has emerged as a key growth engine for Applied Materials.

Applied Materials expects approximately 50% year-over-year revenue growth from leading-edge DRAM customers in fiscal 2025. This surge underscores how crucial DRAM has become in enabling AI workloads and high-bandwidth applications. The strength in DRAM has also propelled Applied Materials’ etch business to new records, surpassing $1 billion in quarterly revenues for the first time.

Applied Materials has been continuously ramping up its R&D investments. For instance, AMAT set up the Equipment and Process Innovation and Commercialization center for research, which is expected to be operational by 2026. The company is also collaborating with organizations like CEA-Leti and increasing its overall R&D expenses.

As discussed in its third-quarter fiscal 2025, the company is reducing its general and administrative expenses to offset the rising cost of R&D, which has effectively enabled AMAT to maintain its operating margin. AMAT’s non-GAAP operating margin expanded 190 basis points in the third quarter of fiscal 2025.

AMAT Suffers From Sluggish Sales in China

A major headwind for Applied Materials is increasing U.S.-China tensions and export restrictions on semiconductor manufacturing equipment. China remains a crucial market for Applied Materials, accounting for a significant portion of total revenues. However, U.S. government restrictions on selling advanced semiconductor equipment to Chinese manufacturers are hurting Applied Materials’ sales and growth outlook.

AMAT faces elevated uncertainty in China due to ongoing geopolitical tensions and regulatory scrutiny. If stricter export controls are imposed, Applied Materials’ long-term revenue potential could take a hit, as Chinese chipmakers are forced to turn to domestic alternatives or non-U.S. suppliers.

This factor in particular has affected AMAT’s top and bottom lines. 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 30 days, while the estimate for fiscal 2026 has been revised downward in the past 30 days.

AMAT Faces Macroeconomic and Competitive Headwinds

Although the broader semiconductor market is recovering, memory markets, including DRAM and NAND, remain weak. The company expects only a gradual recovery in memory-related semiconductor demand in 2025, which could weigh on Applied Materials’ revenue growth in the near term. Furthermore, the competition from players like KLA Corporation KLAC, Lam Research LRCX and ASML Holding ASML in the semiconductor supply chain market is also a concern for AMAT.

Lam Research’s memory segment, accounting for both Dynamic Random Access Memory and Non-Volatile Memory divisions, is gaining traction on the back of AI. Lam Research’s memory and Non-Volatile Memory division’s sales are gaining traction. The rising demand for AI chips is also ramping up the demand for advanced process control and process-enabling solutions provided by KLA Corporation.

KLAC’s advanced packaging solutions are also experiencing robust traction on the back of AI and high-performance computing. ASML Holding’s DRAM and logic customers are driving the demand for its products. These customers are ramping up leading-edge nodes using ASML’s NXE:3800E EUV systems. Additionally, ASML noted that multiple DRAM customers are adopting EUV lithography, which helps in shortening cycle time and lowering costs.

Conclusion: Sell AMAT Now

Although AMAT shares may appear discounted, weak fundamentals, macroeconomic headwinds, and U.S. tariff policies weigh on its attractiveness. Moreover, both the 200-day and 50-day SMAs point to a downward trend. Considering these factors, we recommend investors avoid this Zacks Rank #4 (Sell) stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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

Zacks Investment Research