If you’ve been searching for an AI stock that’s flying under the radar then look no further than Applied Materials (Nasdaq: AMAT). AMAT stock produces engineering solutions that help produce semiconductor chips in the world. The company stands to directly benefit from the rise of artificial intelligence. But, few people are talking about it.

With that in mind, this article will break down Applied Materials and determine whether or not you should buy AMAT stock.

What is AMAT Stock?

Applied Materials is the largest provider of semiconductor wafer fabrication equipment in the world. Per the company’s website, it

modifies materials at atomic levels and on an industrial scale to enable our customers to transform possibilities into reality.” 

In other words, Applied Materials helps create the products/solutions that go into creating semiconductors, fab equipment, and other technologies. Applied Materials operates in five main industries: semiconductors, display, roll coating, solar, and automotive.

But, the main category I want to talk in this article is semiconductors. I feel that AMAT stock is highly underrated when it comes to the growth it will enjoy from artificial intelligence.

To get a better understanding of Applied Materials business, I dug through its financial statements. In short, the company passed my review with flying colors.

AMAT’s Last 3 quarters

Here is how Applied Materials has performed over the last three quarters: 

  • January 2024
      • Revenue: $6.71 billion (-0.5% annually) 
      • Net Income: $2.02 billion (+18% annually)
  • October 2023
      • Revenue: $6.72 billion (-0.4% annually)
      • Net Income: $2 billion (+26% annually)
  • July 2023
    • Revenue: $6.43 billion (-1.5% annually)
    • Net Income: $1.56 billion (-3% annually)

From this, we can see that Applied Materials’ revenue is actually fairly stagnant on a quarterly basis. This makes a bit of sense, since Applied Materials is a fairly mature company (founded in 1967). But, this stagnant revenue doesn’t quite worry me. I believe that AMAT will receive a fresh bump in revenue over the coming years thanks to how many companies are investing in AI.

To learn more, I also dug through the company’s most recent earnings report. Here’s what I found:

  • Reported record revenue in Q1 2024, marking 18 consecutive quarters of YoY growth
  • Recently increased its cash dividend by 25%
  • Issued $700 million in share repurchases 
  • 66% of AMAT’s revenue comes from subscriptions and they have a 90% renewal rate

Over the past decade, Applied Materials has posted 13% annual revenue growth, 33% growth in annual free cash flow, and 12% growth in dividends per share. Since the beginning of 2023, AMAT stock is up roughly 100%.

That will work. AMAT is essentially an old-school chemical engineering company that has established itself as the world leader. It doesn’t have to worry about landing new clients each year because so much of its revenue comes from sticky subscriptions. Additionally, even though revenues aren’t growing significantly, AMAT has returned value to shareholders through stock buybacks and dividends. At the same time, the stock has doubled in the last year.

Should You Buy AMAT Stock?

Applied Materials is a great example of a decades-old company that is likely getting overlooking in the AI arms race. I would even go so far as to call it an AI turnaround story. I recently wrote something similar about Dell stock, which is in a similar position (AKA an old school company that will benefit from the rise of AI).

Applied Materials doesn’t have the sexiest brand name or products of all time. Its bread and butter is “water fab equipment.” The majority of investors don’t even know what this is (and I admittedly had to do some reading before writing this article).

So, Applied Materials doesn’t get talked about as much as other “trendier” AI companies like Nvidia (Nasdaq: NVDA) or SMCI (Nasdaq: SMCI). But, the rising tide raises all ships.

As long as industry leaders like Nvidia or Microsoft (Nasdaq: MSFT) continue to prioritize AI, then it will provide a massive tailwind for AMAT stock. On that note, I want to talk a little bit about why I’m investing in the future of AI.

Why Invest in AI?

It’s very easy to write AI off as “just another investment trend.” If you’ve been following the stock market over the past few years then you know what I mean. Haven’t we seen these types of bubbles before? Meme stocks? NFTs? The Metaverse?

Trust me when I say that artificial intelligence is much, much different than these trends. There’s one easy way to know why.

Ask yourself this, how many times did you venture into “the metaverse” when the metaverse was trending? Probably few. Or, how many NFTs did you buy during the peak of the NFT boom? For most people, probably 0 but maybe 1 or 2.

But, how many times have you used ChatGPT over the past year? Tons. The same goes for AI-powered tools like Adobe Firefly (Nasdaq: ADBE), Google Bard (Nasdaq: GOOGL), or any number of other tools.

The key difference with AI is that it has tangible real-world use cases – tons of them. In fact, it’s not hyperbole to say that we don’t even know all of the ways that we will use artificial intelligence yet. If you need more inspiration, check out the highlights of Nvidia’s 2024 Keynote. At 5:07, you can see a short list of all the companies that are working with Nvidia to develop AI applications. A few companies include:

  1. Amazon (Nasdaq: AMZN)
  2. Google
  3. Oracle (Nasdaq: ORCL)
  4. Meta Platforms (Nasdaq: META)
  5. Tesla (Nasdaq: TSLA)

The list goes on and on. If you talk to anyone in the tech space, they’ll likely tell you that we are at the next stage of computing. We’ve only seen two major game-changing evolutions like this in recent memory. The first was the invention of the internet. The second was the invention of smartphones. Now, we’re witnessing the invention of AI.

Should You Invest?

There’s definitely a chance that AI won’t be as big as the world is expecting it to be. But, I doubt that’s the case. It’s much more likely that AI revolutionizes the world as we know it and lead to entirely new technologies. As investors, this means that the future is ripe with opportunity. 

Everyone wishes that they could go back in time and buy Amazon or Google in the 1990s. If they had the foresight to predict the internet then they could have made a fortune. Well, here you are with a similar opportunity. I’m not saying that you need to dump your life savings into AMAT stock. But, the world around us is definitely changing in real-time. So, how are you going to take advantage?

I hope that you’ve found this article valuable when it comes to learning about AMAT stock. If you’re interested in reading more, please subscribe below to get alerted of new articles.

Disclaimer: This article is for general informational and educational purposes only. It should not be construed as financial advice as the author, Ted Stavetski, is not a financial advisor.