Is Applied Materials Stock Underperforming the Nasdaq?

Santa Clara, California-based Applied Materials, Inc. (AMAT) provides manufacturing equipment, services and software to the semiconductor, display and related industries. With a market cap of $128.4 billion, Applied Materials operates through Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets segments.

Companies worth $10 billion or more are generally described as “large-cap stocks,” Applied Materials fits right into that category, with its market cap exceeding this threshold, reflecting its substantial size and influence in the semiconductor equipment & materials industry. AMAT is the leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world.

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Despite its notable strengths, AMAT has slipped 38.2% from its all-time high of $255.89 touched on Jul. 10, 2024. AMAT stock has plunged 7.7% over the past three months underperforming the Nasdaq Composite’s ($NASX) 1.1% dip during the same time frame.

Over the longer term, AMAT’s performance looks even grimmer. AMAT has plummeted nearly 20% over the past 52 weeks and 18.1% over the past six months, underperforming the NASX’s 18.2% gains over the past year and 7.4% gains over the past six months.

To confirm the downturn, AMAT stock has remained below its 50-day moving average since mid-July 2024 and below its 200-day moving average since mid-October 2024 with slight fluctuations.

Despite delivering better-than-expected results, Applied Materials’ stock plunged 8.2% in the trading session after the release of its Q1 results on Feb. 13. The company reported a notable 6.8% year-over-year growth in net revenues to $7.2 billion, exceeding the Street’s expectations by 18 basis points. Meanwhile, its adjusted EPS increased 11.7% year-over-year to $2.38, surpassing the consensus estimates by 4.4%. Furthermore, the company observed notable improvement in margins with its adjusted gross margin expanding 1% compared to the year-ago quarter to 48.9% and its adjusted operating margin expanding 1.1% to 30.6%.

However, the company observed a massive drop in cash flows, its non-GAAP free cash flow for the quarter dropped by a staggering 74% year-over-year to $544 million. Moreover, in Q2, the company expects its adjusted gross margin to contract 50 basis points quarter-on-quarter to 48.4%, which unsettled investor confidence.

Applied Materials has also underperformed its peer Lam Research Corporation’s (LRCX) 16.8% decline over the past 52 weeks and a 4.7% dip over the past six months.

Nonetheless, analysts remain optimistic about the company’s prospects. Among the 34 analysts covering the AMAT stock, the consensus rating is a “Moderate Buy.” Its mean price target of $209.91 indicates a notable 32.8% upside potential from current price levels.