Applied Materials earnings preview: will the stock hit $625 or $500?

Applied Materials stock fell for a second consecutive session as traders turned their attention to the company’s upcoming earnings report. AMAT was trading at around $525 on Tuesday, down roughly 30% from its year-to-date high of $740. 

The stock’s recent decline will be put to the test this week when the company releases its latest financial results, with investors looking for clues about demand, margins, and the outlook for its semiconductor equipment business.

Applied Materials is benefiting from the AI boom

Applied Materials is a top company in the semiconductor industry. While it does not make chips, it manufactures products used by semiconductor companies like Taiwan Semiconductor, Intel, and GlobalFoundry to make these products. 

Its top products include deposition systems, which deposit ultra-thin layers of materials onto silicon wafers using chemical vapor deposition, physical vapor deposition, and Atomic Layer deposition. It also makes etching systems, ion implantation, chemical mechanical planarization (CMP), and other solutions.

The company’s business is booming amid the ongoing artificial intelligence boom, with its top firms like TSMC and Intel experiencing robust demand. It will also benefit from the ongoing data center buildup in the United States, with companies like Tesla and TSMC building their projects.

The most recent financial results showed that its business continued doing well, with its revenue and margins continuing. Its revenue rose by 11% YoY in the second quarter to $7.9 billion. 

Applied Materials’ gross margin continued growing, crossing the 50% milestone, helped by higher prices and manufacturing cost optimizations. The operating margin rose from 30.7% to 32.7%.

AMAT to publish its earnings

Applied Materials stock reacted mildly to a major announcement from Nvidia, which has inked a $500 billion deal with top financial institutions. The deal will see these companies provide funding to Nvidia’s clients, a move that will benefit companies in the supply chain.

The average estimate among analysts is that its revenue jumped by 23.3% to $8.95 billion. This growth will accelerate in the third quarter to $9.54 billion. For the year, analysts see revenue soaring by 18% this year to $33.2 billion. 

Applied Materials’ profits are also expected to continue growing. Thursday’s results are expected to show that the EPS jumped from $2.48 to $3.39. 

A stronger-than-expected earnings and revenue report will help to justify its valuation. It now trades with a forward price-to-earnings ratio of 42, double its five-year average of 21. 

Applied Materials stock price technical analysis

AMAT stock chart | Source: TradingView

The daily chart shows that the AMAT stock has rebounded in the past few days as investors bought the dip in AI shares. It jumped from a low of $434 on July 29 to the current $525. 

The stock has now remained above the Major S/R pivot point of the Murrey Math Lines of $500. It has also formed a small inverted head-and-shoulders pattern, which often leads to a bullish reversal.

Therefore, the stock will likely rebound to the strong pivot reverse level of $625, up by 20% above the current level. On the other hand, a drop below the support of $450 will invalidate the bullish view.