On Thursday, Morgan Stanley (NYSE:MS) adjusted its stance on Applied Materials (NASDAQ:AMAT), a $149.35 billion semiconductor equipment giant trading at a P/E ratio of 20.83, moving the semiconductor company's stock rating from Equalweight to Underweight.
The firm has also revised its price target downwards to $164 from the previous $179. According to InvestingPro data, the stock is currently trading near its Fair Value, with analyst targets ranging from $155 to $250.
The downgrade reflects concerns over the near-term operating environment for Applied Materials' key end-markets. The company, which holds a leading market share in DRAM and trailing-edge logic and generated $27.18 billion in revenue last year, is anticipated to see robust growth throughout 2023-24. However, the analyst predicts a potential correction in the first half of the year due to a weaker operating environment in these segments.
InvestingPro's analysis reveals the company maintains excellent financial health with a "GREAT" overall score, suggesting strong fundamentals despite near-term challenges.
Despite the positive growth narrative surrounding Applied Materials' position in Gate-All-Around (GAA) technology, its significant exposure to trailing-edge logic and DRAM sectors is expected to cause underperformance compared to its peers in the Semiconductor Equipment & Materials (SPE) industry.
The analyst's evaluation presents a cautious outlook, suggesting that Applied Materials is unlikely to outperform within the U.S. SPE cohort given its market exposure. The firm's analysis includes both bull and bear case valuations for Applied Materials, indicating a unique negative skew within the SPE sector.
The revised price target and rating reflect a relative underweight position for Applied Materials within the cohort, rather than predicting a substantial downside. The analysis indicates challenges for the stock to excel amidst the current market dynamics it faces.
For a deeper understanding of Applied Materials' position and potential, InvestingPro subscribers can access the comprehensive Pro Research Report, offering detailed analysis of the company's fundamentals, valuation metrics, and growth prospects among 1,400+ top stocks.
In other recent news, Applied Materials maintains its business outlook for the first quarter of fiscal 2025, despite new semiconductor technology export regulations. This sentiment is supported by 14 analysts who have recently revised their earnings expectations upward.
The company's recent financial results indicate an annual revenue of $27.2 billion, with non-GAAP earnings per share rising by 7.5% to $8.65. For Q1 2025, Applied Materials anticipates $7.15 billion in revenue and non-GAAP EPS of $2.29.
In terms of analyst notes, TD Cowen, Wolfe Research, Needham, Goldman Sachs (NYSE:GS), and Evercore ISI have adjusted their price targets for Applied Materials. TD Cowen reduced its price target to $230 but maintained a Buy rating, while Wolfe Research, Needham, and Goldman Sachs revised their targets to $230, $225, and $230 respectively. Evercore ISI, however, reduced its target to $250.
These recent developments highlight the ongoing changes within Applied Materials in the semiconductor industry, including the company's ability to navigate regulatory environments and maintain its business outlook.
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