What happened
Shares of Applied Materials (AMAT 0.73%), one of the leading suppliers of semiconductor manufacturing equipment worldwide, rose 7% in the second half of 2022, according to data from S&P Global Market Intelligence. Despite the 2022 bear market, with the S&P 500 falling sharply late last year, shares of the semiconductor giant rallied because of numerous announcements from its main manufacturing customers.
As of this writing, shares of Applied Materials are down 31.5% over the past 12 months.
So what
Applied Materials develops and sells tools that manufacturers use to produce semiconductors. Companies such as Taiwan Semiconductor Manufacturing, Samsung, and Intel need Applied Materials' equipment to make the most advanced chips on the market, making the products vital for the progression of various industries, including cloud computing, smartphones, and the internet of things (IoT).
Early in 2022, the investment community got worried that a glut of supply would show up in the semiconductor market after the shortages of 2020 and 2021, leading to a decrease in demand for Applied Materials' products. Small supply gluts did show up last year, with companies including Nvidia, Apple, and AMD reducing their chip orders. Investors also probably got spooked by the escalating technology/trade dispute between China and the United States when the latter decided to ban selling certain semiconductor supplies to China. China customers accounted for 28% of Applied Materials' revenue in fiscal 2022, with management stating that the new rules could cause the company to lose $2.5 billion in revenue next fiscal year. For reference, consolidated revenue was $25.8 billion last year.
But throughout the end of 2022, major announcements were made that shine a light on why Applied Materials may have a bright future this decade. Taiwan Semiconductor committed to a new $40 billion plant in Arizona, among many other commitments, while Intel has announced two new $20 billion factories in Ohio and Arizona. Samsung is spending a whopping $355 billion on semiconductors and biopharma over the next five years, the majority of which is going to go to computer chips. A lot of this committed capital from these companies will go toward buying equipment from Applied Materials.
Now what
Applied Materials is one of the most important cogs in the semiconductor supply chain, with minimal competition. The industry has been known to be cyclical, so there is always a risk that the demand for Applied Materials tools will decrease in 2023, which could affect the stock. But over the long term, with its three key manufacturing customers set to spend hundreds of billions of dollars building new factories in Asia and North America, the company looks set to succeed over the long term.
