LRCX - Applied Materials dips after Q2 guidance but Wall Street sees positives ahead

2023-05-19 15:15:24 ET

Applied Materials ( NASDAQ: AMAT ) fell more than 2.5% on Friday even as it reported second-quarter results that topped estimates. Nonetheless, Wall Street analysts said there were positive signs for the semiconductor equipment company.

J.P. Morgan analyst Harlan Sur reiterated his overweight rating on Applied Materials ( AMAT ) and raised his per-share price target to $145, noting the company is likely to "outpace" the wafer fab equipment market, even in a down year.

"[W]e believe Applied Materials is set to outpace the market ... driven primarily by its healthy exposure to foundry/logic (particularly in ICAPS/specialty), which remains relatively strong compared to memory (down 40-50%) and advanced logic/foundry (down 10%), supplemented by record backlog levels that include some revenue from systems that were supposed to ship in 2022," Sur wrote in an investor note.

Sur added that the second-quarter results were "solid" with upside provided by mature and specialty, along with services revenue. Conversely, semiconductor systems fell 4% sequentially, but up 12% year-over-year.

In addition, Sur noted that memory makers have pushed out advanced node transitions to 2024, but leading edge foundry and logic players such as Intel ( INTC ) and Taiwan Semiconductor ( TSM ) are still pushing the "performance envelope," which bodes well for Applied Materials.

Competitors Lam Research ( LRCX ) and KLA Corp. ( KLAC ) were fractionally lower in pre-market trading on Friday.

Wells Fargo analyst Joe Quatrochi, who also has an overweight rating on Applied Materials ( AMAT ) after the results, said the firm is "positive" on the stock due to the "stability" from the ICAPS (IoT, Communications, Automotive, Power and Sensors) model and ahead of a broader recovery in wafer fab equipment.

"While AMAT believes mature node demand can remain stable after an extended period of significant growth, we expect this to be an ongoing investor debate," Quatrochi, who boosted his per-share price target to $150, wrote in an investor note.

Quatrochi added that mature node spending is likely to remain "sustainably higher" than pre-2020 levels, noting the high prior to 2019 was roughly $15B.

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