Applied Materials, Inc. (AMAT): A Bull Case Theory

We came across a bullish thesis on Applied Materials, Inc. on Uncle Stock Notes’s Substack. In this article, we will summarize the bulls’ thesis on AMAT. Applied Materials, Inc.'s share was trading at $341.34 as of January 29th. AMAT’s trailing and forward P/E were 38.89 and 34.97 respectively according to Yahoo Finance.

Applied Materials, Inc. engages in the provision of manufacturing equipment, services, and software to the semiconductor, display, and related industries. AMAT has delivered a remarkably resilient performance amid a challenging semiconductor environment, highlighting its position as a cornerstone of advanced chip manufacturing. In Q4 FY2025, the company reported revenue of $6.8 billion, exceeding expectations, and adjusted EPS of $2.17, supported by a gross margin of 48.1% despite a 3% year-over-year revenue decline.

Net income grew 10% to $1.9 billion, while operating margins remained strong at 28.6%, reflecting disciplined R&D investment to drive future growth. For FY2026, management anticipates continued momentum, with Q1 revenue guidance at $6.85 billion and adjusted EPS of $2.18, signaling preparation for a surge in AI-driven demand in the second half of the year.

AMAT’s strength lies in its diversified portfolio. The Semiconductor Systems segment, representing 65% of revenue, is critical for logic, DRAM, and flash production, benefitting from surging AI-related orders for 2nm logic chips and high-bandwidth memory (HBM4/4e). Its Applied Global Services unit generates stable recurring revenue through maintenance and optimization, while the Display segment benefits from rising OLED adoption, underscoring operational resilience. The company’s leadership in advanced packaging, selective etching, atomic-level deposition, and TSV technology forms a strong technological moat, ensuring dominance in next-generation chip production.

Free cash flow remains robust at $7.8 billion for FY25, with $5.5 billion returned to shareholders, reflecting disciplined capital allocation. Valuation metrics suggest room for upside, with a forward P/E of 21.7x and a DCF-derived intrinsic value of $245–$265 per share, implying 10–20% potential appreciation. Risks include geopolitical exposure to China and concentration among major customers. Overall, AMAT is exceptionally positioned to capitalize on the AI supercycle, making it a strategic long-term investment in semiconductor infrastructure, often dubbed the “NVIDIA of semiconductor equipment.”

Previously, we covered a bullish thesis on Applied Materials, Inc. (AMAT) by Long-Term Pick in March 2025, which highlighted the company’s leadership in semiconductor equipment, AI-driven growth, advanced packaging, and disciplined capital allocation. The company's stock price has appreciated by approximately 115.94% since our coverage. The thesis still stands as AMAT remains well-positioned for long-term growth. Uncle Stock Notes shares a similar perspective but emphasizes resilience amid a broader semiconductor downturn and upside from the AI supercycle.

Applied Materials, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 89 hedge fund portfolios held AMAT at the end of the third quarter which was 81 in the previous quarter. While we acknowledge the risk and potential of AMAT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AMAT and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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Disclosure: None.