Applied Materials (AMAT) Stock Could Surge in Coming Years

For many, the semiconductor industry has never been at a more critical moment, and I believe Applied Materials (AMAT) is positioning itself for a big few years ahead. While competitors like Lam Research have often stolen the spotlight, I think Applied Materials’ recent actions signal a company ready to see growth surge. From increased dominance in materials to making some seriously bold investments, management has laid a foundation that’s too promising for me to ignore. For these reasons, I’m bullish on AMAT stock. As the chart below indicates, the company’s share price is up nearly 20% this year.

A Financial Powerhouse

Strong growth is a reason to be bullish on AMAT stock. With $27.2 billion in revenue, the company recently reported its fifth consecutive year of growth, a testament to its resilience in an industry marked by volatility. What excites me most is the company’s gross margin improvement to 47.6%, the highest in more than two decades. To me, such growth is a clear sign that operational efficiencies and strategic pricing are paying off.

The company’s cash flow is even more impressive. Generating $8.7 billion in operating cash flow, AMAT stock not only rewarded shareholders with $5 billion in dividends and buybacks but also positioned itself to fund cutting-edge research and development (R&D) and expansion efforts. Applied Materials is playing the long game, and it’s winning.

AMAT is Dominating the Sector

Another reason for optimism with AMAT stock is the company’s dominant position. The firm’s dominance in semiconductor materials engineering is obvious. For example, in Gate-All-Around (GAA), which offers significant improvements to performance and energy efficiency, Applied Materials has carved out a leadership position in this field. The fact that revenues are projected to double from $2.5 billion over the next year shows that AMAT isn’t just keeping up, it’s leading the pack.

As methods of scaling microchip performance hit limits, advanced packaging has emerged. This new technology unlocks huge performance and efficiency improvements by enabling manufacturers to stack chip components . Applied Materials’ expertise in this area raked in $1.7 billion in revenue over the last year. With the market for advanced packaging expected to double in coming years, AMAT is perfectly positioned to capitalize.

Aligning to AI Growth

What’s most exciting to me about AMAT stock is how these innovations align with the enormous growth in artificial intelligence (AI). The technology behind AI is evolving the entire landscape, creating enormous demand for chips that are faster, more powerful, and more energy-efficient. Applied Materials’ leadership in energy-efficient materials puts it at the center of this seismic shift. As AI adoption accelerates, I’m confident Applied Materials will capture a significant share of the spoils. With shares up a fairly modest 18% in the last year, I suspect there is plenty of growth ahead.

AI workloads require chips that deliver not just raw power but also exceptional energy efficiency. Applied Materials’ innovations in materials engineering and energy-efficient computing solutions make it a linchpin in the AI revolution. As the demand for AI chips accelerates, I believe AMAT’s role will only grow.

At the same time, the company’s focus on advanced packaging is smart and timely. The industry is desperate to push performance beyond the current limits. Applied Materials is already a leader in this space, and it’s growing revenue from advanced packaging is a clear indicator of where the market is headed.

Diversifying for Stability and Growth

While semiconductor systems are Applied Materials’ main focus, its growing diversification is another reason I’m bullish on the company. Its Applied Global Services (AGS) division is a prime example of how AMAT is creating stability in a cyclical industry. In fiscal 2024, AGS achieved record revenue of $6.2 billion, growing 7% year-over-year. This isn’t just a side business; it’s now a core part of Applied Materials’ strategy.

By servicing its vast installed base of equipment through subscription-based contracts, the company has built a steady, recurring revenue stream. The display technologies segment also looks to hold immense potential for investors. Applied Materials’ expertise in enabling OLED production for new laptops and tablets positions it as a future leader. While this segment is not quite as prominent as some for the company, I think it has the potential to deliver outsized returns.

Challenges Aren’t Deal Breakers

Despite my bullish view, reliance on Chinese customers for a significant percentage of its revenues exposes Applied Materials to geopolitical risks, particularly as U.S. trade tensions escalate alongside the incoming Trump administration. Additionally, the cyclical nature of the industry could impact short-term performance. This is reflected in the most recent earnings, where forward guidance disappointed the market, especially as some competitors projected increased quarterly growth.

However, these challenges don’t particularly dampen my outlook. Applied Materials’ fresh diversification, robust balance sheet, and focus on new markets buffers against these risks. Moreover, proactive management of geopolitical uncertainties, through expanding operations in other regions, shows that very little is being left to chance.

Is AMAT Stock a Buy?

I’m encouraged to see Wall Street echo my bullishness. Analysts tracking Applied Materials have a rating of “Moderate Buy,” with a consensus price target that’s 27% higher than current levels. This outlook is based on 14 Buy, seven Hold, and no Sell recommendations assigned in the last three months.

Read more analyst ratings on AMAT stock

Conclusion

I see Applied Materials as a company on the rise, and I couldn’t be more bullish on its potential. From building leadership in materials engineering, to a diversification strategy and focus on transformative technologies like AI and advanced packaging, AMAT looks positioned to capture some serious opportunities in a rapidly evolving industry. While challenges remain, the firm’s financial strength, strategic vision, and commitment to innovation could make it a compelling investment. To me, Applied Materials is a name to watch—and one I believe is poised to have an impressive few years ahead.