Hi. Today we will share our research on AMAT. This US company is essential to the AI industry. Given the recent weakness in semiconductor stocks, this is a good time to share our full research dossier with you.
Applied Materials ($AMAT) is the leading provider of deposition equipment used in wafer fabrication. To understand the full wafer fab equipment value chain, refer to our Industry deep dive.
AMAT leads in deposition and has the third-highest market share in the etch process.
The key for investors to understand is that both process steps are becoming more complicated as circuits are increasingly printed in 3 dimensions. For example, HBM is a vertically stacked chip with 8, 12, and 16 layers. Similarly, logic circuits are increasingly 3-dimensional. New gate-all-around transistors wrap the switch around stacked silicon sheets.
Logic circuits are increasingly 3D
As a result, etching and deposition are much, much tougher than when circuits were largely printed in 2D.
The Market’s Fear
The main reason for AMAT’s ~36% drawdown from its recent high, despite stellar results and an NTM PE ratio of ~28x, is that the market fears a rerun of what happened to Semicap names in 2000, during the Internet boom.
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The latest fall came on 13th Oct, when AMAT dropped ~7% during its presentation at SEMICON West (Lam and KLA fell ~3%). Management guided for ~40% operating margins and 2 points of market share gains by 2030. But it did not give a revenue target, a WFE spending outlook, or any number for 2027. After a ~94% run this year, the market wanted more.
In the 2000 cycle, AMAT and other WFE names reported record quarters. Just as they are right now. But industry spending halved from 2000 to 2002! AMAT’s revenue dropped ~50% from 2000 to 2003, and WFE spending didn't reach 2000 levels until 2006.
The market fears that even a milder version of the above might happen beyond 2028.
Is this time different? Let’s dig in.
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