APPLIED MATERIALS INC /DE (AMAT): what the price requires
At today's price, APPLIED MATERIALS INC /DE (AMAT) is priced for today's economics sustained for ~15.3 years. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-14 · Source: https://boothcheck.com/report/AMAT
Headline
| Field | Value |
|---|---|
| Ticker | AMAT |
| Company | APPLIED MATERIALS INC /DE |
| Current price | $577.29/sh |
| Composition | Semiconductor Systems 73% / Applied Global Services 23% / Corporate and Other 4% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 82.0% |
| Operating margin today | 29.9% |
| Margin expansion implied | +52.1pp |
| Must persist for | 15.3y |
| Multiple paid | 53x operating income |
The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 12.7% cost of capital; growth searched up to the 27.5% self-funding ceiling; each 1pp moves the implied horizon ~2 years.
Reconcile: at the x-ray's 9.3% required return this reads ~8.9 years; the models below use their own rates.
How unusual the bet is: high
| Reference | Value |
|---|---|
| vs own history | +0.37σ |
| cohort percentile (of 177 peers) | 83 |
| sustained it ~10 years at this level | 11% |
| implied end-window share | 2% |
Valuation X-Ray
Every valuation family lands below the price. The price therefore requires assumptions beyond what those standard frames encode.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 5.39x | 5 | expensive |
| Earnings | 5.40x | 5 | expensive |
| Relative | 1.84x | 5 | expensive |
| Growth | 2.32x | 3 | expensive |
Families that call it expensive: Asset, Earnings, Relative, Growth
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.1%); the inversion above states its own rate.
Per-Model Detail (n=18)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $135.27 | 4.27x | yes | FCF base $5.3B, growth 3% (input: historical growth), terminal g 3.4%, WACC 9.1%, 5yr projection |
| DCF Exit Multiple | Growth | $529.39 | 1.09x | yes | Exit EV/EBITDA: 52.0x / 54.0x / 56.0x (bear / base = today's held flat / bull), 5yr |
| Relative Valuation | Relative | $314.53 | 1.84x | yes | P/E 32.88x (blended: static sector reference 22x + trailing (TTM) 58x), scenarios: 27.6x / 32.9x / 38.2x (bear / base = reference held flat / bull), EV/EBITDA 27.4x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $107.13 | 5.39x | yes | BV/sh $29.92, ROE (TTM) 33.1%, ke 9.3% |
| Two-Stage Excess Return | Asset | $213.55 | 2.70x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $248.53 | 2.32x | yes | Rev $29.0B, growth 3% (input: historical growth; tapered), Terminal P/S: 6.7x / 8.0x / 9.3x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $321.15 | 1.80x | yes | EPS $9.89, growth 32% (input: historical EPS growth), PEG=1.79 (Overvalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $111.37 | 5.18x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $8.00B × (1−13%) / WACC 9.1% → EPV (no growth) |
| Residual Income | Asset | $165.72 | 3.48x | yes | BV $29.92 + 5yr PV of (ROE (TTM) 33.1% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $81.62 | 7.07x | yes | √(22.5 × EPS $9.89 × BVPS $29.92) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $170.22 | 3.39x | yes | EBITDA $8.56B × sector EV/EBITDA 16.0x |
| FCF Yield | Earnings | $71.08 | 8.12x | yes | FCF $5343.0M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $61.75 | 9.35x | yes | SBC-adj FCF $4.65B (FCF $5.34B − SBC $0.69B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $319.23 | 1.81x | yes | EPS $9.89 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $28.96 | 19.93x | yes | BV $29.92 × (ROIC 8.8% / WACC 9.1%) |
| P/Sales Sector | Relative | $181.63 | 3.18x | yes | Revenue $29.02B × sector P/S 5.0x |
| PEG Fair Value | Relative | $371.01 | 1.56x | yes | EPS $9.89 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x |
| Earnings Yield | Earnings | $106.96 | 5.40x | yes | EPS $9.89 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net cash | $587.0m |
| Net debt / NOPAT (after-tax) | -0.08x (net cash) |
| Net debt / operating income (pre-tax) | -0.07x (net cash) |
| Interest coverage | 32.2x |
| Share count CAGR (buyback) | -2.5% |
| Burning cash | no |
Bullet Takeaways
- Applied Materials makes the wafer-fabrication tools that nearly every chipmaker needs, with two thirds of revenue in Semiconductor Systems and another quarter in the higher-margin services business that runs and maintains the installed base of equipment.
- The earnings trajectory is the story: the most recent quarter set records on revenue at $7.91 billion and GAAP earnings of $3.51 a share, with gross margin near 50%, and management guides the next quarter to roughly $8.95 billion in revenue.
- The price is the risk: no standard valuation method reaches it, so the entire premium rests on the AI-driven chip-equipment cycle staying strong for years, and the heavy concentration in China, Taiwan, and Korea adds geopolitical exposure to that bet.
Bull Case
The cleanest way to see the bull case is in the direction the numbers are moving. Applied Materials has been posting record results, and the momentum is accelerating, not fading. The most recent quarter delivered record revenue of $7.91 billion, up 11% year over year, with record GAAP earnings of $3.51 a share and gross margin improving to 49.9% on higher average selling prices. A capital-equipment company expanding its gross margin toward 50% while growing revenue is a company with pricing power, and the guidance points higher still: the company guided the following quarter to about $8.95 billion in revenue, an implied growth rate well above 20%. Earnings momentum like that, with margins rising alongside revenue, is the signature of a business riding a real demand wave rather than a one-off.
The wave is the build-out of advanced computing, and Applied sells the picks and shovels for it. Its tools are, in the filing's words, "the critical wafer fabrication tools our customers need to manufacture semiconductors," and those chips go into "artificial intelligence (AI) and data center servers" among other end uses. Management expects its semiconductor-equipment business to grow more than 30% in calendar 2026, with leadership positions in leading-edge logic, DRAM, and advanced packaging, and it sees packaging revenue growing more than 50%. Advanced packaging is the part of chipmaking that has become essential for stitching together the large AI processors, and Applied's strength there is a direct claim on the AI capital-spending cycle.
The financial quality underneath the cycle is high. Applied generates strong free cash flow, near $5.3 billion on a trailing basis, runs a return on equity above 33%, and carries a net-cash balance sheet with interest covered roughly thirty times over. That cash funds both reinvestment and capital return, with the share count falling about 2.5% a year through buybacks. The services segment adds ballast: it earns recurring revenue maintaining the installed base of tools, which is less cyclical than equipment sales and grows as the installed base grows. A franchise with rising margins, a structural AI tailwind, a fortress balance sheet, and a recurring-services cushion is a genuinely strong business, and the bull case is that the earnings power keeps compounding through the cycle.
Bear Case
The bear case is not that Applied is a weak business; it plainly is not. The bear case is about which assumptions the price has baked in, and how fragile the most important one is. At $616.83 (as of June 27, 2026), none of the standard valuation methods reaches the price. The earnings-power and free-cash-flow lenses, which value the demonstrated business, land far below, near $71 to $111. Even the most generous methods, an exit-multiple cash-flow model and a peer-earnings-multiple read, land in the $300s to mid-$500s, still under the price. The entire premium above those methods rests on one assumption: that the current AI-driven equipment cycle is not a peak but a durable, multi-year plateau of elevated capital spending. That is the most fragile assumption in the whole structure, because semiconductor capital equipment is historically among the most cyclical businesses in the economy, and demand is set by customers' capital budgets, which expand and contract sharply.
The customer base sharpens that fragility. Applied warns that it is "exposed to risks associated with a highly concentrated customer base," where "a relatively limited" number of large chipmakers drive its revenue. When a handful of customers set their capital budgets in concert, a coordinated pullback, after a stretch of heavy buying to chase AI demand, would hit Applied's order book fast. The peak-versus-sustainable question is the heart of the cyclical bear: the record revenue and 50% gross margin reflect a moment of extraordinary investment in AI infrastructure, and extrapolating that moment into the indefinite future is exactly what a richly valued cyclical invites and what the cycle eventually punishes.
Geography adds a second, harder-to-handicap risk. A large share of the business sits in Asia, with China a key market, and the company notes that "the United States government has implemented export" restrictions affecting what it can sell and to whom. Export controls are a policy variable Applied does not control, and tightening them removes addressable demand at the stroke of a pen, while a thaw in tensions could just as quickly restore it. That two-way policy risk sits on top of the cyclical risk, and the price has little room for either to break the wrong way. The balance sheet is pristine, so this is not a solvency story; it is a valuation-and-durability story. The bear case is simply that the price assumes the best part of the cycle lasts, in the most cyclical and most policy-exposed corner of technology, and pays a multiple that leaves no margin if it does not.
Valuation
The defining fact of Applied's valuation is that no standard method reaches the price. At $616.83, the asset, earnings-power, peer-multiple, and even forward-growth families all land below the quote. The earnings-power value sits near $111, a free-cash-flow capitalization near $71, a peer-earnings-multiple read near $326, and the most generous cash-flow model, which holds today's high enterprise-value-to-EBITDA multiple flat across the forecast, reaches about $563, still short of the price. When every family of method falls below the price, the market is paying for something beyond what any standard frame supports. That is not a verdict that the company is bad; it is a precise statement that the price embeds a future the demonstrated numbers do not yet contain.
What the price assumes, read off the inversion, is a durability of growth far beyond the typical cycle. The bet is that Applied sustains elevated demand and margins for many years, an assumption appropriate only if the AI-driven equipment cycle is a structural step-change rather than a peak. The honest framing is that the price is a wager on the persistence of the current boom, and the report does not assign a fair value to it because the outcome is a judgment about the chip cycle, not a calculation. The most concrete way to hold the bet is the cyclicality itself: the record 50% gross margin and the 30%-plus equipment growth management guides to are the top of a cycle, and the price requires that top to be a new normal. The static methods are not wrong about the demonstrated business; they are saying the entire premium is the durability assumption.
Solvency is the one place the picture is unambiguously strong, and it removes any downside-from-distress concern. Applied carries net cash, with liquid assets above its debt, and interest covered roughly thirty times over, so the balance sheet is a fortress rather than a risk. The share count has been falling about 2.5% a year through buybacks, which adds to per-share value, and the services segment provides a recurring-revenue cushion under the cyclical equipment sales. The buyer is not underwriting a balance-sheet risk; the buyer is underwriting a valuation that prices the AI-equipment boom as permanent in the most cyclical and most policy-exposed part of technology. The quality of the business is not the question. The durability of the cycle at this price is.
Catalysts
Applied Materials has been setting records as the AI-equipment cycle runs hot. The most recent quarter delivered record revenue of $7.91 billion, up 11% year over year, with record GAAP earnings of $3.51 a share and gross margin improving to 49.9% on higher average selling prices and solid demand across Semiconductor Systems and the services business. The company guided the following quarter to revenue of about $8.95 billion, plus or minus $500 million, implying growth above 20% year over year.
The forward narrative is built on leading-edge and packaging. Management expects its semiconductor-equipment business to grow more than 30% in calendar 2026, citing leadership in leading-edge logic, DRAM, and advanced packaging, and expects packaging revenue specifically to grow more than 50%, reflecting its role in assembling large AI processors. The two variables that most determine whether that narrative holds are the durability of customer capital spending, since a concentrated set of chipmakers drives the order book, and the path of US export policy toward China, given how much of the revenue sits in Asia. The next earnings prints and any change in export rules are the catalysts that would confirm or break the multi-year growth the price assumes.
Peer Cohorts (Per Segment, With Filing Citations)
Semiconductor Systems (reported)
- LRCX (LAM RESEARCH CORPORATION)
- (no filing in the citation store)
- KLAC (KLA CORPORATION)
- (no filing in the citation store)
- ASML (ASML HOLDING NV)
- (no filing in the citation store)
- TER (TERADYNE, INC.)
- (no filing in the citation store)
- ACLS (AXCELIS TECHNOLOGIES INC)
- (no filing in the citation store)
- ONTO (ONTO INNOVATION INC.)
- (no filing in the citation store)
- NVMI (NOVA LTD.)
- (no filing in the citation store)
- ACMR (ACM Research, Inc.)
- (no filing in the citation store)
Applied Global Services (reported)
- LRCX (LAM RESEARCH CORPORATION)
- (no filing in the citation store)
- KLAC (KLA CORPORATION)
- (no filing in the citation store)
- ASML (ASML HOLDING NV)
- (no filing in the citation store)
- TER (TERADYNE, INC.)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
Q2 FY2026 earnings release · Q2 FY2026 earnings call