Applied Materials, Inc. (AMAT): A Bull Case Theory 

We came across a bullish thesis on Applied Materials, Inc. on CompoundingLab’s Substack. In this article, we will summarize the bulls’ thesis on AMAT. Applied Materials, Inc.’s share was trading at $219.48 as of October 13th. AMAT’s trailing and forward P/E were 26.68 and 22.94 respectively according to Yahoo Finance.

Applied Materials Inc. (AMAT) currently trades at a modest 4% premium to fair value, suggesting limited near-term alpha, but the stock still offers a compelling risk-adjusted entry point given the company’s durable competitive positioning. The valuation reflects conservative assumptions, including explicit five-year revenue growth of 6%, slowing to 5% over years six to ten, and a long-term perpetuity growth of 2.6%, below AMAT’s historical averages due to rising risks in certain geographies, notably China, and in specific process tool categories where local competitors may gain share. The discount rate applied is 8.3%, and relative valuation uses a semiconductor industry EBITDA exit multiple of 17.7x, with reinvestment driven by the most recent sales-to-capital ratio of 1.1.

AMAT benefits from secular tailwinds in AI and advanced semiconductors, which support operating leverage and potential margin expansion. Its diversified exposure and prudent capital allocation—through share buybacks and dividends—enhance resilience versus peers, while new business ventures and a potential rebound in the wafer fab equipment (WFE) cycle provide additional upside optionality.

Risks are well-defined and include China exposure, geopolitical tensions, semiconductor capex downturns, margin pressure, technological disruption, regulatory and tax challenges, and macroeconomic shocks, all of which could compress multiples or impede capital returns. Execution risk on new initiatives is also notable.

Despite these headwinds, AMAT’s strong moat, diversified revenue base, and consistent capital returns make the current valuation a reasonable entry point. While upside is modest under base assumptions, the company’s long-term secular growth, operational resilience, and optionality in new markets provide a balanced risk/reward profile for investors seeking exposure to advanced semiconductor technology.

Previously we covered a bullish thesis on Applied Materials, Inc. (AMAT) by Long-Term Pick in February 2025, which highlighted its semiconductor leadership and AI-driven growth. The company’s stock price has appreciated approximately by 38% since our coverage as the thesis played out with strong execution. The thesis still stands as AMAT remains well-positioned for long-term growth. CompoundingLab shares a similar perspective but emphasizes valuation discipline.

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Disclosure: None.