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Bull: The AI-driven supercycle extends, justifying a premium multiple and mitigating cyclical capex drags.
Prolonged WFE Downturn: A severe and protracted cyclical downturn in wafer fabrication equipment spending driven by macro weakness structurally impairs revenue growth.
Applied Materials is a highly profitable, mature compounder in the semiconductor equipment industry. Benefiting from secular tailwinds in AI, IoT, and advanced packaging, it maintains a durable competitive advantage, robust margins, and strong capital return profile.
Applied Materials is a highly profitable, mature compounder in the semiconductor equipment industry. Benefiting from secular tailwinds in AI, IoT, and advanced packaging, it maintains a durable competitive advantage, robust margins, and strong capital return profile.
High switching costs due to deeply integrated equipment in fabrication facilities.
Intangible assets derived from extensive R&D and materials engineering IP.
Accelerated transition to GAA transistors and backside power delivery driving sustained capital intensity.
Sell. Market exuberance ignores cyclical capex drags and inevitable multiple normalization.
Applied Materials, Inc. provides materials engineering solutions, equipment, services, and software to the semiconductor and related industries in the United States, China, Korea, Taiwan, Japan, Southeast Asia, Europe, and internationally. The company operates through Semiconductor Systems and Applied Global Services (AGS) segments. The Semiconductor Systems segment includes semiconductor capital equipment to enable materials engineering steps, including etch, rapid thermal processing, deposition, chemical mechanical planarization, metrology and inspection, wafer packaging, and ion implantation. The AGS segment offers integrated solutions to optimize equipment and fab performance and productivity comprising spares, upgrades, services, and 200 millimeter and other equipment and factory automation software for semiconductor and other products. It serves manufacturers of semiconductor wafers and chips, and other electronic devices. Applied Materials, Inc. was incorporated in 1967 and is headquartered in Santa Clara, California.
If revenue growth stalls to 0% and operating margins revert to historical averages of 22-25%, the DCF fair value drops toward the $155-$175 low end. The current 5.2x Capex/DA ratio would severely penalize free cash flow in a downcycle.
High switching costs due to deeply integrated equipment in fabrication facilities.
Intangible assets derived from extensive R&D and materials engineering IP.
Scale advantages within a highly consolidated oligopoly.
Economic profit is supported when reported returns exceed the company cost-of-capital hurdle.
Unavailable
FCFF DCF remains positive at the base case: base FCFF $6.5B after capex $1.2B, with terminal value at 50.9% of enterprise value. No FCF cliff is projected unless capex/ or materially resets.
If next-year EPS beats but capex guides higher, FCF drag worsens; if EPS misses, expect severe multiple contraction.
If next-year EPS beats but capex guides higher, FCF drag worsens; if EPS misses, expect severe multiple contraction.
If next-year beats but guides higher, drag worsens; if EPS misses, expect severe multiple contraction.
Currently in a transformation build phase, evidenced by an elevated 5.2x Capex-to-DA ratio dragging near-term FCF.
Accelerated transition to GAA transistors and backside power delivery driving sustained capital intensity.
Overcapacity in trailing-edge nodes and macro-driven contraction in consumer electronics demand.
Currently in a transformation build phase, evidenced by an elevated 5.2x Capex-to-DA ratio dragging near-term FCF.
Zero weight. The stock screens as a compelling source of funds or tactical short.
Exit existing long positions immediately given the 41% premium to fair value.
Sell. Composite fair value is $248.66. Downside risk (-43%) severely outweighs the speculative momentum holding the stock at current levels.
Reassess the thesis against the named valuation, risk, and quarterly checkpoint evidence in this report.
Capture your own thesis, position size, and follow-up questions. Stays on this device, only you can see it.
Protracted cyclical downturns and China export restrictions structurally impair growth, driving a severe derating.
A severe and protracted cyclical downturn in wafer fabrication equipment spending driven by macro weakness structurally impairs revenue growth.
Stringent US geopolitical export restrictions completely block critical sales and servicing to Chinese foundries.
Rising domestic competition in China and increased R&D burdens structurally compress operating margins well below cycle peaks.
The five developments that would weaken our investment case.
Broad spending pullbacks across leading-edge logic and foundry customers reduce wafer fab equipment shipments, leading to underabsorbed fixed manufacturing costs and severe cyclical top-line contractions.
Current:4.4% for the period ended 2025-10-31
Alert ifContracts below 0.0% over any fiscal year
Pricing concessions, negative mix shifts toward trailing-node architectures, and factory underutilization reduce gross profitability, eroding unit margins and constraining internal research funding.
Current:48.7% for the period ended 2025-10-31
Alert ifDeclines below 45.0% over any trailing twelve-month period
Failure to sustain operating leverage against rising product development overhead compresses operating earnings, weakening competitive moats and reducing per-share profit expansion.
Current:29.9% for the period ended 2025-10-31
Alert ifFalls below 28.0% over any trailing twelve-month period
Elevated capital expenditures and working capital buildup unbacked by revenue conversion compress free cash flows, diminishing capacity for share buybacks and dividend distributions.
Current:1.137 as of the 2026-05-08 analysis date
Alert ifFalls below 0.90x over any trailing twelve-month period
Loss of market share in domestic China coupled with stringent export licensing restrictions impairs high-margin system deliveries and service revenues, eroding overall return on invested capital.
Current:27.4% as of the 2026-05-08 analysis date
Alert ifDrops below 20.0% over any trailing twelve-month period
Each lens answers a different valuation question. Only included lenses set Fair value; floors and diagnostics provide context.
Project SBC-adjusted EPS, discount each year's earnings at cost of equity, then add a Gordon-growth terminal value.
Project EPS through the explicit advantage period, fade growth as competition catches up, and discount the full stream at cost of equity.
Apply a terminal P/E to the dated forward EPS path, then discount that future share value back to the analysis date.
Convert the revenue and margin path into after-tax free cash flow, discount the annual per-share amounts and at , then adjust for signed per current share.
Add depreciation to net income, subtract maintenance capex, divide by diluted shares, and apply a normalized valuation multiple.
Multiply the peer median PEG by this stock's forecast growth to derive an implied forward P/E, then apply it to forward EPS.
Solve for the growth rate that makes the model value equal the report-date share price.
The AI-driven supercycle extends, justifying a premium multiple and mitigating cyclical capex drags. Revenue compounds at >15%.
Mean-reversion in multiples and market acknowledgment of the capex burden pull the valuation down to fundamental intrinsic value.
If next-year EPS beats but capex guides higher, FCF drag worsens; if EPS misses, expect severe multiple contraction.
Warning level: Contracts below 0.0% over any fiscal year. Broad spending pullbacks across leading-edge logic and foundry customers reduce wafer fab equipment shipments, leading to underabsorbed fixed manufacturing costs and severe cyclical top-line contractions.
Warning level: Declines below 45.0% over any trailing twelve-month period. Pricing concessions, negative mix shifts toward trailing-node architectures, and factory underutilization reduce gross profitability, eroding unit margins and constraining internal research funding.
Warning level: Falls below 28.0% over any trailing twelve-month period. Failure to sustain operating leverage against rising product development overhead compresses operating earnings, weakening competitive moats and reducing per-share profit expansion.
Warning level: Falls below 0.90x over any trailing twelve-month period. Elevated capital expenditures and working capital buildup unbacked by revenue conversion compress free cash flows, diminishing capacity for share buybacks and dividend distributions.
Warning level: Drops below 20.0% over any trailing twelve-month period. Loss of market share in domestic China coupled with stringent export licensing restrictions impairs high-margin system deliveries and service revenues, eroding overall return on invested capital.
| $26.52B |
| $27.18B |
| $28.37B |
| +3.2% |
| Gross profit | $11.99B | $12.38B | $12.90B | $13.81B | +4.8% |
| Operating income | $7.83B | $7.95B | $8.40B | $9.54B | +6.8% |
| Net income | $6.53B | $6.86B | $7.18B | $7.00B | +2.4% |
| EPS (diluted) | $7.44 | $8.11 | $8.61 | $8.66 | +5.2% |
| EBITDA | $8.27B | $8.47B | $8.79B | $9.98B | +6.4% |
| R&D | $2.77B | $3.10B | $3.23B | $3.57B | +8.8% |
| SG&A | $1.44B | $1.63B | $1.80B | $1.77B | +7.1% |
Capital allocation should be evaluated against reinvestment needs, balance-sheet strength, and shareholder returns.
| Revenue | 28,368,000,000 |
|---|---|
| Cost of revenue | 14,560,000,000 |
| Gross profit | 13,808,000,000 |
| Operating expenses | 5,338,000,000 |
| Operating income | 8,470,000,000 |
| Non-operating items and tax | -1,472,000,000 |
| Net income | 6,998,000,000 |
| Total assets | 36,299,000,000 |
|---|---|
| Cash | 7,241,000,000 |
| Current assets | 20,881,000,000 |
| Total liabilities | 15,884,000,000 |
| Current liabilities | 7,999,000,000 |
| Shareholders’ equity | 20,415,000,000 |
Point-in-time financial data used in the 2026-05-08 analysis.
| Period | Revenue | EBITDA | Net income | Operating cash flow | Free cash flow | Capex | Depreciation and amortization | Stock-based compensation | Share repurchases | Dividends paid | Net debt issuance | Investing cash flow | Financing cash flow | Beginning cash | Ending cash | Cash and investments | Total debt | Operating margin | ROIC | WACC | ROIC − WACC spread |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022-10-31 | 25.8B | 8.3B | 6.5B | 5.4B | 4.6B | 787M | 444M | 413M | 6.1B | 873M | 0 | — | — | — | — | 2B | 5.8B | 30.2% | — | 10.1% | — |
| 2023-10-31 | 26.5B | 8.5B | 6.9B | 8.7B | 7.6B | 1.1B | 515M | 490M | 2.2B | 975M | 84M | — | — | — | — | 6.1B | 6B | 28.9% | — | 11.4% | — |
| 2024-10-31 | 27.2B | 8.8B | 7.2B | 8.7B | 7.5B | 1.2B | 392M | 577M | 3.8B | 1.2B | 593M | — | — | — | — | 8B | 6.6B | 28.9% | — | 10.9% | — |
| 2025-10-31 | 28.4B | 10B | 7B | 8B | 5.7B | 2.3B | 435M | 668M | 4.9B | 1.4B | 292M | — | — | — | — | 7.2B | 7.1B | 29.9% | — | 11.9% | — |
AMAT trades at 30.9x forward earnings against a peer median of 35.5x; EV/EBITDA of 36.5x against a peer median of 43.0x; 6 peers.
| Wait for multiple compression to 18x forward P/E and the clearing of cyclical overhangs. |
| Lam Research Corporation |
| 37.3x |
| 17.0x |
| 45.5x |
| 66.8% |
| 35.0% |
| KLAC | KLA Corporation | 35.5x | 17.6x | 39.6x | 95.0% | 41.2% |
| TER | Teradyne Inc. | 37.2x | 14.6x | 47.6x | 28.7% | 37.6% |
| NVDA | NVIDIA Corporation | 18.7x | 23.8x | 38.2x | 101.5% | 65.0% |
