Should I Buy Applied Materials (AMAT)? Finance YouTuber Analysis

The YouTuber, analyzing Morningstar's sell recommendation, agrees with the bearish stance on Applied Materials. Despite the current boom in the chip industry, he highlights the cyclical nature of the business, high valuation multiples (75x free cash flow, 50x earnings), and surprisingly low revenue growth (3% over the last three years) compared to analyst expectations. His valuation model suggests a negative 5% return at current prices, aligning with a 'sell' perspective.

“The stock is currently at 538. Guys, we have a low price of 110, high price of 240, middle price of 166, which means based on today's price, if my middle assumptions occur, I can expect a negative 5% return on my money.”

The YouTuber references Michael Burry's reported short position against Applied Materials, indicating it is among the 'hottest names' that are currently overvalued due to speculative fervor rather than fundamental worth. The underlying technology is acknowledged, but the current price is deemed unsustainable.

“According to reports, Burry has been betting against the hottest names, things like Nvidia, Applied Materials...”

The YouTuber suggests Applied Materials as a key supplier of equipment for HBM manufacturing, noting its involvement in deposition, etching, and layering processes. He emphasizes its joint research with SK Hynix and the rapid growth of its HBM-related revenue, projecting it to double to $3 billion. He views it as a stable giant with a strong growth engine in memory.

“So, you're buying a stable, cash-rich giant with a memory afterburner that's tripling all on its own.”

The YouTuber recommends Applied Materials, a supplier for semiconductor manufacturing, despite past hits from China restrictions. The company has strong fundamentals, continued growth in semiconductors, and a decent PEG ratio of 1.57. Its stock is trading nearly 20% below its 200-day SMA, presenting a good opportunity. Analysts project a 32% upside.

“And their 200 day SMA is at $191, which is nearly 20% higher than what it's trading at today. They happen to have great financials, solid growth planned in, and they're trading well below their 200 day SMA.”

The YouTuber suggests avoiding Applied Materials, despite its S&P 500 inclusion, due to its high 42 P/E ratio and 35 forward P/E, which he believes is detached from its modest 3.5% annual revenue growth since 2022. He argues that such a high multiple implies an unrealistic expectation for future revenue acceleration.

“But when you're buying this stock at a 40 price multiple, it means that you're expecting this revenue to be basically going vertical very very soon, which could happen. But I think that it's a pretty tall order to ask.”

The YouTuber believes the recent 14% drop in AMAT is an unjustified mispricing, driven by market overreaction to soft guidance for next quarter rather than fundamental business issues. He argues the company has strong financials, record revenue, high margins, and is a critical infrastructure provider for the AI industry. He also points to potential upside from a recent shift in US-China export policy, which could make current guidance too conservative.

“I'm waiting. And if the setup improves, I'll be looking to add small measured strategic because while the market throws a tantrum, the core thesis hasn't changed.”

The YouTuber views Applied Materials as a buy, similar to ASML, due to its critical role in multiple parts of the semiconductor manufacturing process. He notes the stock has traded down from its peak, offering a buying opportunity through its volatility. He believes in strong long-term secular trends for the industry, making AMAT cheap by both PE ratio and cash flow yield.

“Applied material it's cheap by the PE Ratio cheap by the cash flow yield and it's a company that I believe has a great future”

The YouTuber suggests Applied Materials as a key player in the chip and AI space, arguing that no other major chip company can operate without its technology. They emphasize its long-term growth potential, noting its 5-year return of 169%.

“Nobody meaning Nvidia AMD none of them can't do what they do without this company in the Forefront of it.”

The YouTuber recommends Applied Materials, emphasizing its foundational role in the semiconductor industry, enabling companies like Nvidia. He notes its recent pullback as an opportunity for future growth, suggesting it's a key 'parts maker' rather than just a 'car'.

“this company is the one that make all the stuff even possible for anybody to make a chip Nvidia can't do what they do without Applied Materials”

The analyst recommends Applied Materials as a 'picks and shovels' play for the growing semiconductor industry, noting its leadership in equipment and tools. The company shows strong sales growth and operating margins compared to peers, trades at a discount on a price-to-sales basis, and analysts see significant upside.

“The shares of Amat trade for just 3.1 times sales more than a third cheaper than the industry despite being clearly one of the best stocks in its group analysts see a lot of upside here with a Target price of 133 dollars a share about 50 percent higher over the next year.”