We Are Boosting Our Price Target for This Semiconductor Star
We are lifting our Applied Materials ($AMAT) price target following last night’s beat-and-raise quarterly earnings report. AMAT’s top line beat consensus expectations, rising 11% year over year and 13% sequentially. More impressive? Gross margin hit 50%, the highest level in over 25 years. That combination led April-ending quarter earnings per share to climb 20% year over year. Prospects for that combo to continue are driving consensus EPS and Wall Street price targets higher this morning. We’re raising our target to $510 from $465.
Tight chip industry capacity is pushing demand for Applied’s semiconductor systems business and its gross margins that are approaching 55%. A big element in that is the favorable pricing environment, which reflects industry capacity and increasingly complex equipment, thanks to demand for smaller, more powerful chips.
Revenue for the semiconductor systems business, which accounts for 75% of overall revenue and more than 80% of total operating profit, soared 16% quarter over quarter. Management now sees that business growing more than 30% in calendar 2026, up from its more than 20% forecast back in February. Backing that revision, Applied said its customers are providing rolling eight-quarter demand forecasts — the clearest and longest visibility Applied has ever had — allowing coordinated supply chain investment.
Management is also tracking more than 100 global factory projects, adding more than 10 to that list in the most recent quarter alone. Demand is robust for three areas in which Applied has leading positions – leading-edge foundry logic, DRAM, and advanced packaging. Those three are expected to account for more than 80% of year-on-year growth in total wafer fab equipment spending in 2026 and 2027.
Taking the 11% year-over-year revenue increase booked in the reported April quarter against management’s guidance of $8.95 billion for the current July quarter implies a 17% year-over-year increase for those two quarters. That suggests a far stronger revenue ramp in the back half of 2026 and into 2027.
That keeps us bullish on AMAT shares even in the face of today’s post earnings reaction. Earlier this week, we mentioned Taiwan Semi’s increased forecast for the global chip market to $1.5 trillion by 2030, up from its prior one for $1 trillion. Should we see another step up in TSM’s capital spending levels, that will be a reason for us to circle back to our new $510 target for AMAT. We will also keep tabs on capital expenditures from Samsung ($SSNLF), Intel ($INTC), SK Hynix, and EPS All-Stars resident, Micron ($MU).
For now, we’ll keep our “Two” rating intact, but should we see AMAT shares pull back near the $410 level, that would give us a reason to contemplate upgrading the shares. It would provide a level to consider adding more shares to the Portfolio. A far more compelling risk-to-reward tradeoff would be closer to $380, which happens to be the 50-day moving average.
At the time of publication, TheStreet Pro Portfolio was long AMAT shares.
