Applied Materials (AMAT +0.59%) was among several semiconductor equipment companies to gain last month, as the company, known for making equipment to produce chips and display panels, benefited from several macroeconomic and sector-level news items last month.
While there was no major company-specific news out on Applied Materials last month, the related items were enough to drive the stock up 27%, according to data from S&P Global Market Intelligence.
As you can see from the chart, much of the gains came in the middle of the month.
A new semiconductor boom
While the artificial intelligence (AI) boom has propelled stocks like Nvidia to multibagger gains, the semiconductor equipment sector, which operates on a different cycle, has lagged behind due to weaker growth and challenges in areas like China.
However, investors responded positively to news out of the sector last month, indicating that a new spending cycle could be afoot in semiconductor equipment.
First, Applied Materials benefited from the Federal Reserve's 25-basis point rate cut on Sept. 17, and its forecast for two more cuts over the rest of the year. Semiconductor equipment, such as what Applied Materials sells, tends to be very expensive, so lower rates should make it easier for the company to borrow money so they can buy products from Applied Materials. The stock gained 2.6% that day.
Applied Materials then jumped the following session after Nvidia and Intel announced their partnership. The move helped boost Applied Materials and its semi equipment peers, since Intel is a major fab, and Nvidia's $5 billion investment into Intel was expected to fuel spending on chip equipment. It also improves Intel's prospects over the long term. The stock jumped 6.5% that day. Applied Materials is a major supplier for Intel, and even received Intel's EPIC Supplier Award this year.
Finally, Applied Materials jumped 5.4% on Sept. 22 after it received an upgrade to overweight from Morgan Stanley. The investment bank hiked its wafer fab equipment sales growth forecast from 5% to 10%, seeing increased demand in memory. As a result, it boosted EPS estimates for Applied Materials.
Image source: Getty Images.
What's next for Applied Materials?
A strong earnings report from Micron toward the end of the month also seemed to boost Applied's prospects.
Like ASML, Applied Materials' business strength hasn't been in question, but cyclical demand is a major factor, as revenue rose just 8% in its most recent quarter.
Still, the news around Intel and broader growth in AI is promising. If that momentum continues, Applied Materials has room to move higher.
