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Applied Materials (AMAT) stock has seen a strong year so far, rising over 30% year-to-date, outperforming the Nasdaq-100, which gained about 11% over the same period. Despite a mixed 2023 due to weak semiconductor capital spending, there are positive indicators for the company. In Q1 FY’24, revenue was flat at $6.71 billion, and adjusted earnings increased by 5% to $2.13 per share. Additionally, with memory prices picking up and PC sales expected to improve, as well as increased demand from the artificial intelligence space, the semiconductor downcycle may have bottomed out. Applied Materials is well diversified across the semiconductor production value chain and benefits from higher demand in AI and China’s focus on developing its own semiconductors.

AMAT stock has seen strong gains over the past few years, increasing by 145% since early 2021, compared to a 40% increase for the S&P 500. However, the stock’s returns have been inconsistent, with an 82% increase in 2021, a -38% decrease in 2022, and a 66% increase in 2023. In comparison, the S&P 500 saw returns of 27% in 2021, -19% in 2022, and 24% in 2023. Beating the S&P 500 has been challenging for individual stocks, even for tech heavyweights like Microsoft, Apple, and Nvidia, and mega-cap stars like Google, Tesla, and Amazon. The Trefis High Quality Portfolio, with 30 stocks, has outperformed the S&P 500 each year over the same period, providing better returns with less risk.

Currently trading at around $210 per share, Applied Materials stock is valued at about 28x projected FY’24 earnings. While the multiple is slightly high compared to historical levels, the stock is believed to be fairly priced. Trends such as generative AI and cloud computing could drive AMAT stock higher. The company has also expanded into the lithography space, competing with Dutch giant ASML. Applied Materials stock is valued at $202 per share, in line with the current market price. The company’s focus on expanding revenue streams and the potential in emerging technologies could drive future growth.

Overall, Applied Materials has shown resilience and potential for growth despite challenges in the semiconductor industry. With positive Q1 results and potential improvements in memory prices, PC sales, and demand from the AI space, the company is well positioned for future success. However, the stock’s inconsistent returns and high valuation present some risks. It will be interesting to see how Applied Materials navigates through the current macroeconomic environment and whether it can continue to outperform the market in the coming months. Investors will be closely watching the company’s strategic moves and financial performance to gauge its future prospects in the semiconductor industry.

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