Applied Materials, Inc. AMAT shares have plunged 17.1% in the past three months, underperforming the Zacks Computer and Technology sector’s decline of 13%.

Applied Materials Performance Chart

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Applied Materials’ recent decline stems from a mix of broader market weakness. A widespread sell-off in tech stocks, triggered by fears of rising trade tensions and slowing economic growth concerns, has put pressure on the entire sector, including Super Micro Computer.

This decline in the share price of this semiconductor leader raises the question: Should investors take advantage of this decline and buy the dip?

Applied Materials Faces Stiff Competition

As Applied Materials provides engineering solutions for semiconductors, flat panel display, and solar industries, it faces competition from players like Lam Research LRCX in the semiconductor space, ASML Holding ASML in the photolithography and advanced manufacturing equipment segment. KLA Corporation KLAC is a dominant competitor in the wafer inspection space.

For instance, Lam Research develops Atomic Layer Deposition tools like AT200M, AT410 and AT650P, which are similar to the devices made by AMAT. Both ASML and AMAT specialize in advanced semiconductor nodes, although they develop solutions for various stages of semiconductor production. ASML Holdings develops lithography solutions, including EXE and NXE systems.

Applied Materials and KLA Corporation offer similar solutions like Wafer Inspection, Yield Enhancement and Process Control inspection systems. KLA Corporation develops inspection systems, including 3935 and 3920 EP broadband plasma defect inspection systems. Although AMAT is dealing with a broader market sell-off and growing competition, not everything is gloom and doom for the company.

AMAT’s Technological Leadership Remains a Major Advantage

The demand for AI-driven semiconductors is at the heart of the industry’s next growth cycle, and Applied Materials is well-positioned to capitalize on this transformation. The company has made significant strides in cutting-edge chip manufacturing, particularly in gate-all-around (GAA) transistors, high-bandwidth memory and advanced packaging. These innovations are critical to enabling faster, more energy-efficient AI processing.

Applied Materials’ revenues from advanced semiconductor nodes surpassed $2.5 billion in fiscal 2024, and management expects this figure to double in fiscal 2025. The transition from FinFET to GAA transistors is expanding AMAT’s total addressable market by 15%, while Applied Materials’ revenues in this segment are projected to grow 30% per wafer fab capacity expansion. The company is also on track to secure more than 50% of the market share in GAA and backside power delivery, solidifying its leadership in the AI computing era.

The advanced packaging segment has become an increasingly critical part of Applied Materials’ business, with revenues tripling over the past four years to $1.7 billion in fiscal 2024. AMAT has secured volume orders from leading-edge customers for its Integrated Hybrid Bonding technology, strengthening its position in next-generation chip manufacturing. The upcoming EPIC Center in Silicon Valley, expected to go live in 2026, will further drive innovation in semiconductor packaging and process technology.

Due to all these positive factors, analysts are optimistic about the stock’s future growth. The Zacks Consensus Estimate for fiscal 2025 and 2026 revenues is projected to grow 7% and 6.9%, respectively. The Zacks Consensus Estimate for 2025 and 2026 earnings is projected to grow 8.6% and 7%, respectively. Applied Materials is on track to sustain its momentum. Additionally, the company has consistently outperformed earnings expectations, delivering an average surprise of 5.6% over the last four quarters, reflecting its strong execution capabilities.

AMAT’s Valuation Still Offers Upside Potential

Applied Materials Valuation Chart

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Conclusion: Hold AMAT for Now

Applied Materials remains a key player in semiconductor manufacturing, with a dominant position in AI-driven chip production, advanced packaging and next-generation process technology. For investors, holding AMAT is the best approach. Once industry conditions stabilize and AI-driven semiconductor demand accelerates, the stock is well-positioned for a strong rebound. Currently, Applied Materials carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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