🖥️ Applied Materials: What Semiconductor Shortage?

GM on EV spree. Youtube begins punishment.


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🖥️ Applied Materials: What Semiconductor Shortage?

Applied Materials’ (AMAT) outlook for the future is brimming with optimism as the company continues its solid momentum backed by a strong balance sheet.  (Tweet This)

Background: If there’s one thing we have heard these past few weeks and months, it’s that the sky is falling as semiconductor shortage hits every company that has a chip in its product. The alarm bells have been ringing for car manufacturers of all hues on this topic. With the semiconductor supply chain going through the doldrums, the problem has exacerbated to no end thanks to the pandemic. The chip manufacturers have been bracing for the worst and taking steps to avoid any disruption.

Here’s where Applied Materials comes in. Founded in 1967, Applied Materials is an industry giant in providing materials engineering solutions for developing and manufacturing the gamut from semiconductor chips to the most advanced display. The Santa Clara, CA-based went public about 50 years ago and, during this time, made over 24 acquisitions and has a current market value of $128.1B.

As companies gear up to meet the soaring semiconductor demand, Applied Materials is already a star, with the stock surging 175% in 2020 and the good news pouring in 2021.

What Happened?: Applied Materials seems to be in a sweet spot that’s tailor-made for it. Intel (INTC) recently announced an investment of $20B to augment its chip manufacturing capabilities. Last week, Applied Materials was awarded Intel’s coveted Supplier Continuous Quality Improvement award (SCQI) that cements its position as an integral member of Intel’s supply chain and stands to gain directly from Intel’s investment.

Not to be outdone, Taiwan Semiconductor Manufacturing Company (TSM) announced it had earmarked a $100B investment in three years to augment its manufacturing capabilities and supply chain. TSMC recently announced it’s working closely with Applied Materials and other suppliers to develop an advanced 3-nanometer process as it races ahead of Intel which had significant issues with its 7-nanometer process and had to revert to the 10-nanometer process.

Applied Materials stands to gain as these two major chip manufacturers (among others) jostle for the headlines. The company will change its business model to a subscription-based model from 2024, which will generate about 70% of its future revenue.

The positive reinforcement does not end there. President Biden’s infrastructure bill includes $50B specifically for semiconductor research and manufacturing, and Applied Material stands to gain from this generosity as well. The company also announced a $7.5B stock repurchase program signaling that the stock is currently undervalued. These sentiments only serve to enhance the virtuous cycle Applied Materials seems to be enjoying these days. At least at AMAT, no one seems too concerned about semiconductor shortage, especially when there’s no shortage of interest in its stock, with shares up 60% YTD.

Market reaction: AMAT ended the day at $139.54, down 2.45%. The stock is up 0.37% in pre-market trading.

Company Snapshot 📈

AMAT $139.54 −3.51 (−2.45%)

Analyst Ratings (26 Analysts) BUY 85% HOLD 12% SELL 4%


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Later Today 🕒

  • 6:00 PM IST: Trade deficit
  • 11:30 PM IST: FOMC minutes

Fun Fact of The Day 🌞

Octopuses lay 56,000 eggs at a time.

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