Applied Materials (AMAT 4.17%) stock has lost a quarter of its value on the market in 2022, but shares of the company that supplies semiconductor manufacturing equipment to foundries have been in recovery mode over the past week.
NASDAQ: AMAT
Key Data Points
It won't be surprising to see Applied Materials stock get a nice shot in the arm when it releases its fiscal 2022 second-quarter results after the market closes on May 19. Let's look at what Wall Street expects from the company and why it is on track to smash those expectations.
Applied Materials is on track to deliver solid results once again
Applied Materials has won big from the global semiconductor shortage over the past couple of years, consistently logging robust top- and bottom-line growth. That trend is expected to continue as the company guided for $6.35 billion in revenue and $1.90 per share in adjusted earnings when it released its fiscal first-quarter results, for the three months ending on Jan. 30, in February.
The midpoint of Applied Materials' second-quarter guidance range points toward a 14% year-over-year increase in revenue, while its earnings are on track to jump 17%. Consensus estimates are nearly in line with the company's guidance, as Wall Street is looking for $1.90 per share in earnings on $6.37 billion in revenue.
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It is worth noting that Applied Materials has beaten analysts' expectations in three of the last four quarters, and it could do the same once again with its upcoming report. That's because the company has been sitting on a tremendous backlog of orders given the booming demand for chip manufacturing equipment.
Applied Materials CFO Bob Halliday said on the company's February earnings conference call that it had a record backlog worth $8 billion at the end of fiscal Q1. The company added $1.3 billion worth of backlog in Q1, and management believes that Applied Materials is on track to "carry sizable backlog into 2023."
Additionally, the supply chain constraints that limited Applied Materials' growth in Q1 are expected to ease as the year progresses. As such, the company's numbers could be better than expected and that could give the stock's rally a jolt.
More reasons to buy the stock
Applied Materials management expects both 2022 and 2023 to be growth years for the company, though it won't be surprising to see it sustain its momentum for a longer time thanks to the market it serves.
According to a third-party research report, the global semiconductor manufacturing equipment market could hit nearly $142 billion in revenue by 2030, compared to $72 billion last year. Applied Materials is in a nice position to tap into this incremental growth opportunity as it supplies its equipment to major foundries such as Samsung, Taiwan Semiconductor Manufacturing -- popularly known as TSMC -- and Intel, among others.
In fiscal 2021, Samsung and TSMC together produced 35% of Applied Materials' total revenue, while Intel was another key customer. These chipmakers have ambitious plans to increase their manufacturing capacities over the long run. Intel, for instance, has decided to spend $88 billion in Europe along with $20 billion on a factory in Ohio.
TSMC, on the other hand, has also laid out an aggressive capital spending plan as it looks to speed up the development of advanced process nodes that will help it create chips that could tackle bigger workloads more efficiently. Given these tailwinds, it is not surprising to see that analysts are expecting 15%-plus annual earnings growth for the next five years, though the size of the end-market opportunity could help Applied Materials grow at a faster pace.
As such, investors who are still on the sidelines and haven't bought Applied Materials stock yet should consider doing so. The stock is trading at 16 times trailing earnings, which is a discount to the Nasdaq-100's multiple of 26. A strong earnings report and healthy guidance could make this semiconductor stock go parabolic, which means that it could rise rapidly in a short period and become more expensive to buy.
