Applied Materials (AMAT) holds a superior valuation over its peers in the semiconductor equipment manufacturing space, and it is entering a multi-year demand cycle due to the rise of artificial intelligence uses and devices, according to KeyBanc.
The investment firm increased its price target on the stock to $285 from $240 and maintained its Overweight rating.
“Core to our current positioning is AMAT’s relative underperformance earlier this year, which we think was driven by concerns around its mature node (or ‘ICAPS’) exposure as well as risk to its China business from incremental trade restrictions,” said Keybanc analysts, led by Steve Barger, in an investor note. “While we think those concerns are valid, we also think AMAT is well positioned to benefit from a broader advanced logic and advanced packaging build-out (offsetting both China and slower mature node demand), both driven primarily by heavy AI demand.”
KeyBanc believes the transition to 2nm node over the next year, which will have a higher emphasis on etch and deposition, should also benefit Applied Materials due to its competitive edge in those areas. Continued strong demand for high-bandwidth memory and dynamic random access memory should also provide upside.
“Overall, we think that AMAT’s positioning warrants NT outperformance as it closes the valuation gap between it and its closest peers,” Barger added. “At 22-23x FY2 P/E, AMAT is trading 3-12 turns below peers.”
Those peers include KLA (KLAC), Lam Research (LRCX) and Tokyo Electron Limited (OTCPK:TOELY).