Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Applied Material's 2 Biggest Growth Opportunities

By Chris Neiger - Apr 26, 2017 at 4:18PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company is looking to the growing cloud-computing market and the transition from LED to OLED displays to drive growth this year.

Applied Materials ( AMAT -0.45% ) makes equipment that allows companies to manufacture semiconductors, displays, and other components for some of the most advanced technology on the planet. And just like other tech companies, Applied has to stay ahead of new trends so that it can provide the latest equipment to its customers.

Based on the company's own earnings calls and new trends in the tech space, it's becoming increasingly clear that both cloud computing and the transition from LED to OLED displays in smartphones will probably be two key growth opportunities for Applied. So let's take a quick look at what the company's doing in these markets and how it could benefit.

Two people working on semiconductor equipment.

Image source: Applied Materials.

To the cloud!

Let's start with the massive cloud-computing market and Applied's opportunity in it. Applied CFO Bob Halliday said on the company's earnings call back in February "our customers will continue to benefit from making big investments in leading-edge capacity to power devices and the cloud." 

He went on to describe that cloud computing is creating huge value for industries such as advertising, retailing, transportation, and travel, and that companies in these markets will need to make "massive investments" in processors, memories, and displays as a result. Halliday indicated that this could be a very good thing for Applied's growth, saying, "I see a very healthy future in this for Applied Materials." 

Halliday's viewpoint is more than a hunch, though. Gartner estimates that cloud-computing spending will total $1 trillion between 2016 and 2021. 

On display...

And while cloud-computing spending ramps up, Applied is already benefiting from another growing market: display technologies. Many tech companies are are transitioning from LED displays to OLED ones for things like televisions and smartphones, and it's creating a massive opportunity for Applied.

The company's CEO, Gary Dickerson, said on Applied's first-quarter 2017 earnings call that 50% of its OLED equipment demand is coming from new customers in the mobile space. Dickerson noted that the current growth in OLED is increasing the company's total addressable market. 

"We have talked about tripling our served market as we go forward, and certainly as these new technologies like OLED or flexible OLED are adopted, that increases our total available market," he said.

Applied thinks its customers will invest an additional $2 billion in display equipment this year and that even after this increased investment, the smartphone industry will only be at a 55% adoption rate for OLED. In short, there's much more where that came from. 

Investors should have confidence that the company will be able to follow through with its display-equipment ambitions, considering Applied has managed to grow display revenue by about 20% annually since 2012 and because of its leading position in semiconductor manufacturing space. Morningstar analyst Abhinav Davuluri said that investors should expect the company's revenues to grow by double digits in fiscal 2017 -- and I think that at least part of that growth should come from the company's potential in OLED displays and the broader cloud computing market.  

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Applied Materials, Inc. Stock Quote
Applied Materials, Inc.
AMAT
$145.83 (-0.45%) $0.66
Gartner, Inc. Stock Quote
Gartner, Inc.
IT
$309.40 (-2.86%) $-9.11

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
624%
 
S&P 500 Returns
141%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/04/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.