AMAT

This Semiconductor Stock Has 32% Upside, According to 1 Wall Street Analyst

Semiconductor manufacturers like Intel and TSMC wouldn't be able to churn out more than $500 billion worth of chips each year without an array of complex equipment. Applied Materials (NASDAQ: AMAT) is one of the largest and most diversified semiconductor manufacturing equipment suppliers, and one analyst expects the stock to soar.

An analyst at B. Riley maintained a "buy" rating and boosted his price target from $220 to $250 on Applied Materials stock last week. That new price target represents a potential upside of about 32%. The analyst pointed to the company's better-than-expected recent results and the expectation that an industrywide recovery would develop through 2025.

A return to growth is coming

While demand in portions of the semiconductor market, like AI chips, has been booming, other parts are only now coming out of a deep downturn.

Applied Materials' overall revenue was flat in the first quarter of fiscal 2024. The semiconductor industry remains a mixed bag, with pockets of strong demand but plenty of uncertainty.

It's hard to imagine demand for semiconductors not growing in the long run. Even without revenue growth, the company remains highly profitable. Applied Materials generated net income of $2 billion on $6.7 billion of revenue in the first quarter.

Is Applied Materials stock a buy?

Applied Materials trades at a price-to-earnings ratio of around 22, in the middle of its historical range over the past decade. While the stock isn't an obvious bargain, it doesn't look expensive, either.

B. Riley's updated price target looks realistic if the company can return to growth this year and accelerate that growth in 2025. A $250 price target is the most optimistic among analysts. Still, Applied Materials looks like a reasonable way to bet on the continued growth of the semiconductor industry.

Should you invest $1,000 in Applied Materials right now?

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Timothy Green has positions in Intel. The Motley Fool has positions in and recommends Applied Materials and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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