Applied Materials AMAT has seen a 9.1% decrease in its share price over the past month, which has left many investors questioning whether it is the time to buy the dip.

This drop compares unfavorably with the industry’s fall of 7.6%, the Zacks Computer and Technology sector’s growth of 0.2% and the S&P 500’s return of 1%.

Despite reporting impressive third-quarter fiscal 2024 results, the company is facing significant challenges due to market volatility, high inflation and geo-political tensions.

One-Month Price Performance

 

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What Ails AMAT Stock?

Growing concerns over the Federal Reserve's interest rate policies and fears of a looming U.S. recession do not bode well for Applied Materials.

Escalating tensions between the United States and China countries have been detrimental to the semiconductor industry’s prospects. U.S. restrictions on high-tech exports to China, particularly advanced AI chips, have been a major negative for chip providers.

As the United States tightens restrictions on China, Beijing has intensified its push for self-sufficiency in critical industries. The recent directive to phase out foreign chips from key telecom networks by 2027 underscores Beijing's accelerating efforts to reduce the reliance on Western technology.

This shift poses a serious threat to AMAT, as it faces potential market restrictions.

AMAT Trades Below 50-Day Moving Average

From a technical perspective, Applied Materials' shares are trading below their 50-day moving average. This is typically seen as a bearish signal, indicating the possibility of a further downward trend, at least in the short run.

 

Image Source: Zacks Investment Research

 

Technology Innovations Boost Prospects of AMAT

Given the fact that artificial intelligence (AI) has become mainstream in several industries and sectors, Applied Materials’ strategic pivot toward the said technology is a major positive. As businesses of different sizes are rushing to boost their operational efficiency with the power of AI, AMAT has positioned itself as a key player in this transformative wave.

Applied Materials’ technology leadership in leading-edge logic, compute memory or high-performance DRAM, stacking technology and advanced packaging is helping it capitalize on the growing proliferation of AI, which is the main reason behind the rebound in the semiconductor industry this year.

Increasing demand for sophisticated chips required to power AI-centric data centers is benefiting the performance of the company’s Semiconductor Systems segment.

The company is also gaining from tectonic shifts in technology, including the Internet of Things (IoT), autonomous and electric vehicles, and clean energy, which have been shaping the growth trajectory of the semiconductor industry.

AMAT boasts technology leadership in four key semiconductor technologies — leading-edge logic, compute memory or high-performance DRAM, stacking technology and advanced packaging. 

It is a clear leader in process equipment for DRAM as it offers strong capabilities in logic and DRAM patterning. It also provides co-optimized hard mask solutions for capacitor scaling.

Applied Materials’ robust Planar DRAM Scaling is gaining strong momentum. Future transition from 6F2 to VT 4F2 is expected to expand the company’s served addressable market (SAM) from $6 billion to $6.5 billion. Also, the subsequent transition to 3D DRAM is expected to grow AMAT’s SAM from $6.5 billion to $7.5 billion.

The company’s patterning systems and technologies are designed to address the challenges resulting from shrinking pattern dimensions and the growing complexity in vertical stacking found in today’s most advanced semiconductor devices. 

The company’s leading-edge capabilities enable chipmakers to establish accurate statistical process control, ramp up production runs rapidly and achieve consistently high production yields. Solid momentum in AMAT’s transistor offerings on the back of strength in Gate-All-Around (GAA) is a plus. Transition to GAA is expected to grow AMAT’s transistor SAM from $6 billion to $7 billion.

The introduction of the Backside Power Delivery system has strengthened Applied Materials’ wiring offerings.

AMAT’s manufacturing equipment helps improve the performance, power, yield and costs of semiconductor devices that serve the IoT, communications, automotive, power and sensors markets.

The company’s advanced packaging technologies address challenges arising from the increasing heterogeneous integration of multiple integrated circuit dies in a single package.

Applied Materials, with such a robust technology portfolio, competes well with its peers like Lam Research LRCX and ASML Holding ASML.