AMAT Likely to Beat Q2 Earnings Estimates: How to Play the Stock

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13-05-2025

Applied Materials AMAT is scheduled to report second-quarter fiscal 2025 results on May 15.
For the fiscal second quarter, AMAT expects revenues to be $7.1 billion (+/- $400 million). The Zacks Consensus Estimate for revenues is pegged at $7.12 billion, suggesting a rise of 7.13% from the year-ago quarter's reading.
Applied Materials projects non-GAAP earnings to be $2.30 (+/- 18 cents). The Zacks Consensus Estimate for earnings is pegged at $2.31 per share, indicating growth of 10.5% from the year-ago quarter's reported figure. The figure has been revised upward by a penny in the past 30 days.
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AMAT has an impressive earnings surprise history. In the last reported quarter, the company delivered an earnings surprise of 4.4%. Its earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 5.6%.
Applied Materials, Inc. price-consensus-chart | Applied Materials, Inc. Quote
Our proven model predicts an earnings beat for AMAT this earnings season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat, which is the case here. You can see the complete list of today's Zacks #1 Rank stocks here.
Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate ($2.35 per share) and the Zacks Consensus Estimate ($2.31 per share), is +1.94%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Zacks Rank: AMAT carries a Zacks Rank #3 at present.
Applied Materials' cutting-edge logic, compute memory, high-performance DRAM, stacking technology and advanced packaging are expected to have enabled it to capitalize on the growing adoption of artificial intelligence (AI), which is the primary reason for the semiconductor industry's rebound over the past year.
Increasing demand for sophisticated chips required to power AI-centric data centers is expected to have aided the performance of the company's Semiconductor Systems segment in the fiscal second quarter. Its strong capabilities in logic and solid position in DRAM patterning are likely to have acted as boons. Its patterning systems and technologies, which are designed to address the shrinking pattern dimension challenges and the growing complexity in vertical stacking, are likely to have benefited the segment.
AMAT's manufacturing equipment, which helps improve the performance, power, yield and costs of semiconductor devices that serve the IoT, communications, automotive, power and sensors markets, is likely to have contributed well to the top-line growth of the segment.
However, escalating tensions between the United States and China do not bode well for semiconductor companies. This is likely to have hindered the top-line growth of the segment. Changes in the spending patterns of key customers and supply-chain constraints are likely to have been other headwinds. For the second quarter of fiscal 2025, the company's sales projection for Semiconductor Systems is pegged at $5.3 billion. The Zacks Consensus Estimate is pegged at $5.3 billion, indicating growth of 8.2% from the year-ago quarter's actual.
Applied Materials' growing 200-millimeter business and solid momentum among long-term service agreements are likely to have driven sales growth in its Applied Global Services (AGS) segment in the quarter under review. Strengthening of the subscription business is likely to have been another tailwind. For the second quarter of fiscal 2025, Applied Materials' projection for AGS sales is pegged at $1.55 billion. The Zacks Consensus Estimate is also pegged at $1.55 billion, indicating growth of 1.1% from the year-ago quarter's reported figure.
Applied Materials' Display and Adjacent Markets segment sales are likely to have benefited from the growing adoption of OLED displays and higher equipment sales to Chinese LCD manufacturers. For the second quarter, it projects revenues of around $250 million from this segment. The consensus mark for the Display and Adjacent Markets segment's second-quarter revenues is also pegged at $250 million, implying a year-over-year increase of 39.8%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
Applied Materials shares have plunged 18% over the past year, underperforming the Zacks Electronics – Semiconductors industry, which has gained 18% over the same time frame.
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Let us now look at the value Applied Materials offers to its investors at current levels. AMAT is currently trading at a discount with a forward 12-month price-to-sales (P/S) of 4.6X compared with the industry's 7.51X.
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Applied Materials operates in a highly competitive market space where it faces competition from players, including Lam Research LRCX in the semiconductor space, ASML Holding ASML in the photolithography and advanced manufacturing equipment segment. KLA Corporation KLAC is a dominant competitor in the wafer inspection space.
For instance, Lam Research develops Atomic Layer Deposition tools like AT200M, AT410 and AT650P that are similar to the devices made by AMAT. Both ASML and AMAT specialise in advanced semiconductor nodes although developing solutions for various stages of semiconductor production. ASML Holdings develops lithography solutions, including EXE and NXE systems.
Applied Materials and KLA Corporation offer similar solutions like Wafer Inspection, Yield Enhancement and Process Control inspection systems. KLA Corporation develops inspection systems, including 3935 and 3920 EP broadband plasma defect inspection systems. Although Applied Materials is dealing with broader market sell-off and growing competition, not everything is gloom and doom for the company.
However, Applied Materials leads the market with its superior design wins. It is well-poised to capitalize on the technology-inflection-led growing demand for next-generation chips on the back of its product innovations and leadership in leading-edge logic, compute memory, high bandwidth memory and advanced packaging.
Moreover, AMAT is likely to capitalize on AI-driven semiconductor demand. The company has made significant strides in cutting-edge chip manufacturing, particularly in gate-all-around (GAA) transistors, high-bandwidth memory and advanced packaging. These innovations are critical to enabling faster, more energy-efficient AI processing.
Applied Materials has the right mix of innovation and market positioning to thrive in the AI-fueled semiconductor boom. Its leadership in advanced chip manufacturing, combined with the steady expansion of its service business, provides strong growth avenues. This makes AMAT stock worth retaining at present.
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This article originally published on Zacks Investment Research (zacks.com).
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