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Applied Materials, Inc. (AMAT)
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Listening to bloomberg... They often mention semi equipment companies $LRCX, $AMAT, $ASML but never $KLAC. Even from daily pre-market you can judge that this company is not well-known. Even though it outperforms them in quarterly growth and forecasts too and analysts are more bullish here than there... I guess we need more time and more outperforming quarters before market notices that metrology is outperforming.
The market and the analyst have created a "cycle peak" narrative for the semi equipment space. TSM just said......not so fast. we see strong capacity expansion for chips AND equipment continuing THRU 2022. The market will adjust to the NEW narrative . All chip and chip equipment stock can go 15-20% higher in the next 6 months.
Saw the Cramer bit on semi cap eqpt. He was very positive towards the sector, saying this was going to grow and grow, as opposed to creating excess capacity then taking a hit when overcapacity happens. His expectation is the digitization of pretty much everything is not so much a trend, it is the way of the world. And it'll continue for a long time.
Which, to be blunt, is pretty much saying what I've been saying up here, too. So many things demand chips these days, and the need for compute is increasing exponentially. Just look at vehicles, they'll need the equivalent of 2 computers to handle autonomous driving (the need for redundancy is essential given the vehicle is making all the choices). That'll be 4x the chip count now.
For reasons which were pretty weak, he stated a preference for $LRCX over $AMAT, $ASML and $KLAC. But clearly, he was blessing the sector as much as any one stock.
ASML sees revenue growth growing at an 11% average rate through 2030. While 11% may not shoot the lights out in any one year, a compounded 11% growth rate over 10 years is extremely good and difficult for most companies to achieve, especially those already as large as ASML. Throw in annual share repurchases and a rising dividend, and ASML's stock looks like an unstoppable compounder for the next decade.
Now with a forward PE of 15 and a PEG of only 0.75. AMAT is significantly undervalued and at a time when there's likely never been more growth and expansion in the industry. AMAT themselves have said profit alone is expected to grow almost 50% going forward. Once the market gets over it's overreaction phase, I expect a significant movement for this stock.
Taiwan Semiconductor Manufacturing Company Limited
Semiconductor sector is hot! Don't let the intermittent pullbacks sway your positions. Global semiconductor sales are up big. Up 30% yoy and over 3% month to month, according to SIA. Just about all semiconductor and equipment companies are offering strong guidance going forward with no indication of weakness anytime soon. Most claiming they see the shortage lasting through 2022 ($MRVL the most recent). This shortage combined with the global expansion taking place AND the evolution of the industry's super "cycle" indicates a strong long term outlook for the industry. Who stands to benefit the most? TSM of course. Along with $ASML with their monopoly on advanced EUV that's in great demand by anyone wanting to compete in producing advanced semiconductors. $AMAT is the most diversified equipment provider. $KLAC is the dominant PDC supplier. MRVL for (5G and Data Center) infrastructure. $LRCX for memory. $ICHR and $UCTT are extreme value plays right now as well that benefit from having the companies listed above as customers. GLTA!
I took time to analyze all companies in SOX index to select those, which would fit holding during tapering (those, which are not overvalued, profitable and are set to generate good income near-term). Here's my best bets:
$KLAC - my best bet and safe-haven. Unlike some other semiconductor equipment manufacturers ($LRCX, $AMAT, $TXN) this one is on the front of the chip miniaturization and its metrology equipment is used in testing and production of 3nm, 5nm and 7nm nodes. This company's further prospects and financials will be very correlated to $ASML, because smaller nodes require more metrology. But KLAC is currently 2-3 times cheaper than ASML fundamentally. Moreover, even if after EUV lithography there will emerge some alternative production equipment for sub-nm nodes and ASML loses its dominance, KLAC still should feel fine because even more metrology will be needed for smaller nodes regardless of production technology - so safe to hold like 10 years ahead.
$AMKR - company is on the front of the chip shortage and engaged in production of microchips used in devices, wearables, IoT, vehicles etc. The company is extremely cheap fundamentally, even though it has grown 2x since the pandemic begun. Management comment that it will experience cyclical tailwinds at least through whole 2022 and good results has only started to show up in earnings yet. I expect at least 30% upside here yet going forward but it is not a long-term asset.
$MCHP - analog and digital microchip producers, whose products are in high demand right now. Company is again relatively cheap to its peers ($MRVL, $ADI), while management reports 60 weeks lead times on new orders in some categories right now. Everything is essentially booked up 1 year ahead already. Company is about to get a 2:1 stock split too in one week.
$INTC - Intel apparently is cheap fundamentally compared to its peers and overall has been beaten down for several quarters. But near-term some positive developments are about to start working. New family of processors on new chipset and new DDR5 memory is poised to be a success starting selling in November. In January Intel will finally release new videocards, which are planned to be competitive this time to $NVDA and $AMD . Also new CEO's plans to engage into fab business goes well with current chip shortage theme. Time will tell if Intel can return its lost share in processors and videocards but the possibility of it should give the stock momentum anyway.
Very nice close today. Definitely on it's way back over $140. Glad I bought more below $124, but still a good price here.
I've seen this movie before. AMAT hits 140 or so, stagnates there and tumbles back into the 130's.
A lot of people want to get ahead of the curve -- thinking the biz demand has peaked and we'll see softening demand in the not too distant future. So they get out before this stock tanks.
The reality is, AMAT will be filling fabs with equipment for years to come. Demand is increasing at rates which are hard to imagine. In industry after industry, companies are becoming "compute centric", built around products designed, made and tested on a computer. Customer contacts developed and maintained on a computer. And in the products themselves, there is more and more embedded compute power. Just had my water meter replaced a few minutes ago, and there's an electronic connection for automated monitoring instead of a meter-reader.
Autos are a good example. Compute content is going up exponentially. within vehicles. Its still early on for chip use in entertainment systems, safety systems, fuel efficiency systems, mapping systems, voice recognition systems, various external communications and the big one, autonomous driving. Building vehicles is increasingly done by computer, from managing robots to managing inventories. Design is all computer, parts fabrication is mostly computer and a lot of testing is also computer. Want to be a success selling cars? You'll need to buy enormous numbers of chips.
There are more demand drivers than at anytime in history and the demand is going up enormously. And that won't end anytime soon. Even if an imbalance happens and the semi biz winds up with more capacity than it needs, that will be brief. Just too much demand coming from too many directions.
AMAT has a massive future, along with LRCX, ASML, KLAC, etc.
The market, though, isn't seeing it and I do wonder if it ever will. Because no matter how good these companies are and how incredibly difficult it is for new competitors to emerge, they never seem to get an above average market multiple.
Congrats to those buying on the dip near $125 again. I threw a lot in the other day near $124. Just give it a little time. This is a great company to be invested in for the long run (& short run). I've got over 900 shares in the last year plus and will keep buying.
KGI Securities UPGRADED both KLAC and AMAT. AMAT price target $160. KLAC price target $420. GLTA
Back in today at just over$126. Story still very strong and good entry
AMAT down eight points after hours noted on Yahoo finance. Is anyone getting the same?? 5:16 pm e.s.t.
Also if this is true what caused the 8 point drop￼????? ￼confused???
Coiled spring. PE is more than reasonable and will shrink with the coming growth. We'll see what happens.
Hate to say the Micron news (soft forecast) will hurt AMAT tomorrow. But it will.
Thing is, the Micron news actually demonstrates how the chip shortage is actually holding back demand.
"A slowing of orders from PC makers is a short-term issue, according to Mehrotra. Some of his customers are struggling to get other types of components, meaning they can’t build all of the laptops and desktops that have been ordered. That’s led them to reduce memory inventory. The situation will reverse when industrywide shortages ease in the coming months, he said."
This is a big issue. If you need 100 different chips to build a module, but you can only get 99 of those chips, you can't build the module. So there's no need to keep building inventory for those other 99 chips until the 1 in short supply becomes available. Micron is saying demand is there for the PCs (ie backlog building), but specific chip shortages means companies can't meet the demand, so they order less chips across the board. As the shortage ends, demand jumps because of the backlog for PCs.
This news is actually positive for AMAT because it says end market demand is strong and it is the end markets which drive demand. But that isn't how I expect the Micron news to get interpreted.
135 Guaranteed for next week. 140 is very likely.
$10 lower than last QTR end! And yet the company has only seen demand grow. Goldman raised a couple weeks ago due to management meetings. They see a ramp higher in demand. And we're lower?
It’s like they are trying their hardest to keep these semi stocks down
New Street Research (never heard of them) downgraded both AMAT & ASML to neutral from buy. These guys are still saying that there is still a semi equipment "cycle" and the CAPX spending is nearing it's peak. I think they are wrong and the CAPX spending will be strong thru 2022 at a minimum.
I think the hardest things for investors is to change there sentiment from bullish to bearish. During these long bull cycles investors get complacent and almost in denial even though the economy has gone into cycles the last 160 years. earnings and the markets don't grow forever. It would be wise for some on this board to watch Ray Dalio's 30 minute online video "how the economic machine works"
Is flexible working making us work more?
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