Analysts reset targets for key supplier Nvidia after earnings

Nvidia’s $3 trillion market cap has raised questions about its room for growth. But its semiconductor supplier, Applied Materials, with a market cap of $170 billion, probably has more potential.

Applied materials (lover) mainly manufactures the complex machinery used to manufacture chips. The company has three segments: Semiconductor Systems, Global Applied Services, and Display and Adjacent Markets.

The semiconductor segment is the company’s core business, generating $19.7 billion in net sales for fiscal 2023, accounting for 74% of the total. The global services segment and the display segment contributed 22% and 3% of net sales, respectively, according to the company’s 2023 annual report.

Among Applied Materials’ biggest customers is Taiwan Semiconductor (TSM) Samsung (SSNLF) and Intel (INTC) . In fiscal 2023, Taiwan Semiconductor accounted for 19% of the company’s net sales, and Samsung contributed 15%. Intel accounted for less than 10%.

Related: Big names exit Nvidia stock as AI giant stumbles ahead of earnings

Semiconductors play a crucial role in the AI ​​wave. OpenAI needs tens of thousands of Nvidias (NVDA) chips to develop their ChatGPT chatbot – probably a huge demand in the future. Taiwan Semiconductor, the world’s largest independent semiconductor foundry, supplies at least 43 percent of Nvidia’s chips, according to fintech company Moomoo.

Shares of Applied Materials are up nearly 35% year to date since Aug. 16, while Nvidia is up 151.6%, Taiwan Semiconductor has added 72% and the Nasdaq Composite is up 19.4% over the same period .

Applied Materials stock fell 1.86% following financial results.

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Applied Materials posted upbeat earnings

On August 15, Applied Materials released its third-quarter fiscal results that beat analysts’ estimates.

The company reported earnings of $2.12 per share, ahead of the consensus estimate of $2.03 per share. Revenues reached $6.78 billion. The estimate was $6.68 billion.

For the current quarter, the company sees “strong traction in AI and data center computing” and expects its revenue to reach $6.93 billion, up 3% year-over-year at mid-point.

Related: Analysts reboot Arm Holdings stock price target following earnings

“The race to lead AI will be determined by which companies in the semiconductor industry are the first to deliver substantial improvements in energy-efficient computing performance,” CEO Gary Dickerson said in the earnings call. “The value of bringing next-generation semiconductor technology to market faster has never been greater.”

In the third fiscal quarter, the company saw a decline in sales in China, its largest geographic revenue segment. China revenue of $2.2 million, representing 32% of total revenue, was down from $2.8 million and 43% in the prior quarter.

Applied materials stocks fell 1.86% to $207.90 on Aug. 16…

2 analysts increase their AMAT targets

Morgan Stanley raised its price target on Applied Materials to $224 from $223 and maintains an equal rating.

The analyst believes that the earnings results reflected a strong performance, except for a decline in sales in China. But “numbers were flat” due to foundry strength and logic, according to the analyst’s research note.

JPMorgan analyst Harlan Sur raised AMAT’s price target to $250 from $240 and maintains an overweight rating, citing “strong July quarter results driven by accelerated demand.” The analyst also believes that the company will benefit from future technological advances.

More Wall Street analysts:

• Analysts reset Amazon stock price targets after earnings
• The analyst resets the price target on Rivian shares on updated plans
• Analysts reset price target on Arm Holdings shares after earnings

Wells Fargo cut its price target on Applied Materials from $280 to $260, but maintained an overweight rating. The analyst was concerned that guidance for the next October quarter was slightly below buy-side expectations.

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