AMAT Earnings Preview- What will the semicap equipment play tell us about the DRAM market?
AInvestThursday, Feb 15, 2024 1:53 pm ET
1min read

Applied Materials, a leading semiconductor equipment company, reports its Q1 results tonight after the close.  AMAT is expected to report earnings of $1.90 per share and revenues of $6.48 billion, representing a decline of approximately 6% and 3%, respectively, from the prior year period. AMAT provided guidance for EPS in the range of $1.72-2.08 and for revenues between $6.07-6.87 billion.

Despite potential short-term challenges, including a slowdown in China, the broader DRAM equipment spending trends remain positive, buoyed by improving memory industry utilization and aggressive investments in HBM. This is expected to offset an anticipated slow down in the mature node business. 

AMAT's strategic focus on HBM and new digital lithography systems, alongside its leadership in advanced packaging sales, is expected to drive growth, with significant sales contributions anticipated.

AMAT's recent performance has been solid, overcoming uncertainties such as a U.S. criminal investigation into potential export restriction violations, supported by positive developments from peers and upbeat guidance from Taiwan Semi.

Results were driven by strong demand for its advanced packaging and memory products. Applied Materials' advanced packaging products, including HBM, have been in high demand due to the increasing adoption of artificial intelligence (AI) and other advanced technologies. The company's memory products have also seen strong demand, particularly for high-bandwidth memory (HBM), which has driven significant sales growth. 

The company's gross margin trajectory is also expected to remain stable, despite a decline in the domestic China sales mix through the year. The market is closely monitoring AMAT's gross margin trajectory, especially given the changes in the domestic China sales mix, and its response to KLA's exit from the FPD business.

Applied Materials is optimistic about a recovery in advanced logic later this year, as the semiconductor industry cyclical correction is largely behind, and demand across end markets is stable. Applied Materials' outlook is supported by the growing demand for advanced packaging and memory products, as well as the increasing adoption of AI and other advanced technologies. 

Guidance for the upcoming quarter will be crucial for maintaining AMAT's stock momentum, with investors looking for confirmation of continued demand and growth potential into 2025, despite a potentially muted environment in 2024. Citigroup predicts Q1 EPS to align with expectations, while foreseeing a slight dip in Q2 due to reduced ICAPS sales, influenced by lower utilization rates at mature foundries. With all large-cap semicaps all reporting sequential growth, there are some broader expectations for AMAT to outpace expectations, thus an in line result will be viewed as a miss. 

Shares of AMAT have been appreciating nicely, running over +23% higher since the company's last quarterly report. The stock is up 16% in 2024. AMAT trades at a forward P/E of 21x which is reasonable in the current market environment. 


Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.