Is AMAT a good stock to buy? We came across a bullish thesis on Applied Materials, Inc. on Nikhs’s Substack. In this article, we will summarize the bulls’ thesis on AMAT. Applied Materials, Inc.’s share was trading at $448.25 as of May 27th. AMAT’s trailing and forward P/E were 42.17 and 38.17 respectively according to Yahoo Finance.
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Applied Materials (AMAT) is positioned as a leading semiconductor equipment manufacturer benefiting from the structural shift toward increasingly complex chip architectures driven by AI, advanced logic nodes, and memory intensity. The investment thesis centers on the “complexity tax,” where transitions such as GAA transistors, high-bandwidth memory (HBM), and backside power delivery significantly increase the number of process steps per wafer, expanding demand for Applied Materials’ broad portfolio of materials engineering tools.
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This structural advantage is now being reinforced by a simultaneous expansion in wafer volume, as agentic AI workloads drive incremental demand across CPU, DRAM, and NAND, effectively compounding both complexity and unit demand. Management has significantly upgraded its CY2026 semiconductor equipment growth outlook from above 20% to above 30%, reflecting stronger-than-expected demand visibility and accelerated customer orders.
This is further supported by customers providing rolling eight-quarter demand forecasts, which reduces historical cyclicality and improves long-term visibility, strengthening the company’s re-rating potential. Additionally, agentic AI is emerging as an incremental demand driver on top of existing AI training and inference workloads, further expanding semiconductor intensity across compute and memory segments.
Financial performance remains robust, with record revenue, strong gross margin expansion above 50%, and continued strength in Semi Systems margins exceeding 54%. While free cash flow conversion was weak at $210 million due to elevated working capital, management attributes this to capacity buildout and inventory positioning ahead of higher growth expectations, with normalization expected as demand flows through.
Valuation scenarios suggest upside potential, with a probability-weighted fair value range of $490–$530, implying approximately 5–15% upside from current levels near $468. In a bull case where “The Compounding Era” materializes through sustained >15% growth into FY2027–FY2029 and continued complexity-driven expansion, Applied Materials could rerate toward a 30–35x multiple, supporting further upside beyond current expectations as it transitions from a cyclical equipment supplier to a manufacturing-complexity compounder.
Previously, we covered a bullish thesis on Applied Materials, Inc. (AMAT) by Long-Term Pick in March 2025, which highlighted AI-driven semiconductor demand, strength in gate-all-around transistors, advanced packaging, and steady growth across Semiconductor Systems and AGS segments, with shares trading near $158 at the time. AMAT’s stock price has appreciated by approximately 183.57% since our coverage. Nikhs’s Substack shares a similar view but emphasizes agentic AI-driven volume expansion and a structural complexity tax re-rating.
Applied Materials, Inc. is on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 138 hedge fund portfolios held AMAT at the end of the first quarter which was 111 in the previous quarter. While we acknowledge the risk and potential of AMAT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AMAT and that has 10,000% upside potential, check out our report about this cheapest AI stock.
Disclosure: None.
