We recently published a list of Analyst Says These 10 AI Stocks Have More Upside Potential. Since Applied Materials, Inc. (NASDAQ:AMAT) ranks 9th on the list, it deserves a deeper look.
King Lip, BakerAvenue Wealth Management’s chief strategist, recently talked to CNBC about the latest decline in tech stocks and market rotation. Lip said that he’s still bullish on tech stocks and a single event does not show a trend. However, the cause of decline in tech stocks last week was the lower-than-expected CPI data which caused investors to do some “profit taking” and invest in names that can benefit “more” from lower interest rates, according to the analyst. Lip noted that small-cap stocks, real estate stocks, among others, gained ground on the back of this trend.
However, Lip has high expectations from the upcoming earnings reports from tech companies. He also said that July has been one of the strongest months for tech stocks. Lip, however, said that major tech companies cannot go on to post record gains and their returns are expected to “fall in line with historical returns.”
Lip thinks the economy is entering a “Goldilocks scenario” where growth is steady but not “hot enough” to cause inflation. He reiterated his view that he expects strong earnings growth this year and in 2025, which could be a tailwind for stocks.
Asked what would cause earnings growth of tech companies, Lip said a lot of that comes down to efficient management and strong cash piles these companies have. He also said “slightly” lower interest rates could also be a tailwind for the economy.
Since Lip is bullish on tech stocks and believes major AI companies still have upside potential, we decided to take a look at the top names in his portfolio. These are the top holdings of King Lip, according to CNBC. With each stock we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Applied Materials Inc (NASDAQ:AMAT)
Number of Hedge Fund Investors: 79
Applied Materials is one of the stocks in King Lip’s portfolio.
Applied Materials, Inc. (NASDAQ:AMAT) is one of those non-fancy AI stocks that don’t get much limelight from the Wall Street. The stock, up 59% this year so far, received an upgrade from Barclays. The investment firm expects the stock to benefit from higher spending in the semiconductor equipment industry. Barclays expects wafer fab equipment spending to hit $96.3 billion in 2024 and $106.4 billion in 2025, up from its previous estimate of $80.6 billion and $89.1 billion, respectively.
In May, Applied Materials, Inc. (NASDAQ:AMAT) posted solid Q2 results. Mizuho Securities analyst Vijay Rakesh upped his price target on the stock to $245 from $225 and kept his Buy rating. Citi analyst Atif Malik also increased his price target on the stock to $250 from $170. The analyst sees “further upside” to Applied Materials, Inc.’s (NASDAQ:AMAT) 2025 estimates.
Applied Materials, Inc.’s (NASDAQ:AMAT) moat is strong and wide. The company makes equipment used to make semiconductor chips. It has a diverse equipment portfolio that addresses the high-growth ICAPS industry (IoT, Communications, Automotive, Power, and Sensors). Last year Applied Materials, Inc. (NASDAQ:AMAT) made a breakthrough announcement by launching Centura Sculpta, a machine that dramatically reduces the number of steps required in chips production. Applied Materials, Inc. (NASDAQ:AMAT) said chipmakers can save a whopping $250 million per 100K wafer starts per month of production capacity in costs.
Wall Street expects Applied Materials, Inc.’s (NASDAQ:AMAT)’ revenue to surge 11% in 2025 while earnings growth is forecasted to come in at 15.60% in the year. The stock’s forward P/E is 23.73, not much higher than the industry average of 27, when seen in the context of growth.
Overall, Applied Materials, Inc. (NASDAQ:AMAT) ranks 9th on Insider Monkey’s list titled Analyst Says These 10 AI Stocks Have More Upside Potential. While we acknowledge the potential of Applied Materials, Inc. (NASDAQ:AMAT), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMAT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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