Share prices of Applied Materials (AMAT -1.96%) have jumped impressively from the 52-week lows they hit just over two months ago, gaining 31% in a short time on the back of the broader rally in the tech-laden Nasdaq Composite index that has clocked solid gains of 25% during the same period.

What's worth noting is that investors shrugged off Applied Materials' mixed fiscal 2025 second-quarter results (for the three months ended April 27), which were released on May 15. The semiconductor equipment supplier reported robust growth in sales and earnings for the quarter, but its top line was a tad lighter than expected.

The company's outlook for the current quarter followed a similar pattern. However, savvy investors would do well to note that Applied Materials' results and guidance were resilient at a time when the tariff-fueled turmoil and the restrictions on sales of semiconductor equipment to China are turning out to be headwinds for the company.

Let's take a look at the factors that could help Applied Materials stock maintain its momentum on the market.

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Applied Materials is growing at a faster pace despite reduced dependence on China

Applied Materials reported year-over-year growth of 7% in its revenue in the previous quarter, while its non-GAAP earnings per share (EPS) increased at a faster pace of 14%. A quarter of its revenue came from sales of semiconductor manufacturing equipment to China.

For comparison, Applied Materials' top-line growth was flat in the same quarter last year, while its adjusted earnings increased at a much slower pace of 5%. Applied Materials got 43% of its revenue from Chinese customers in the year-ago period. So, the company's growth accelerated even though restrictions on sales of advanced chipmaking equipment to Chinese customers hurt its business in its largest market abroad.

This can be attributed to the global growth in semiconductor demand owing to catalysts such as artificial intelligence (AI). Equity research firm Summit Insights Group predicts that the improvement in demand for advanced chips in the second half of 2025 and next year should allow Applied Materials to continue doing well even if its Chinese business remains negatively impacted.

Applied Materials CEO Gary Dickerson's remarks on last month's earnings conference call suggest something similar:

The impact of AI datacenter innovation and investments is apparent in the wafer fab equipment market, where there are significant shifts in the spending mix this year. We see investment in leading edge foundry-logic growing substantially in 2025, and we also expect spending for leading-edge DRAM to be up significantly.

Large-scale AI infrastructure investments such as the $500 billion Stargate project and the multibillion-dollar investments by cloud-computing giants to bolster their AI capabilities are the reasons why foundries and chipmakers are focused on enhancing their manufacturing capacities. Foundry giant Taiwan Semiconductor Manufacturing (TSM -1.76%), for instance, is set to increase its capital expenditures (capex) by 38% at the midpoint of its forecast to $40 billion in 2025. The Taiwan-based company is on track to build nine fabrication plants this year.

TSMC further points out that it will spend 70% of its capital spending on advanced process nodes. That's not surprising as almost three-fourths of the company's revenue comes from selling chips manufactured using advanced nodes that are 7-nanometer (nm) or smaller in size. Looking ahead, TSMC estimates that its revenue from sales of AI chips is likely to increase at an annual rate of mid-40% through 2029.

So, it won't be surprising to see the company spending more money on shoring up the production capacity of advanced chips to meet the AI-fueled demand. The increase in capex by the likes of TSMC is expected to drive a 2% increase in global semiconductor equipment spending this year to $110 billion, followed by a much stronger increase of 18% in 2026. This should ideally lead to an acceleration in Applied Materials' growth as well, paving the way for more stock price upside.

The stock is built for more gains

Analysts are forecasting a 10% increase in Applied Materials' earnings this fiscal year to $9.49 per share. This is expected to be followed by a smaller jump in fiscal 2026 before another year of double-digit growth in fiscal 2027.

Data by YCharts.

However, the sharp acceleration in global semiconductor equipment spending could allow Applied Materials to grow at a faster rate over the next couple of years. But even if the company's bottom line grows in line with consensus expectations and its earnings hit $11.17 per share after a couple of fiscal years (as per the chart above), its stock price could jump to $329 (based on the tech-laden Nasdaq-100 index's forward earnings multiple of 29).

That points toward an 88% gain from current levels in the next three years. Applied Materials stock is now trading at just 18 times forward earnings, which is a nice discount to the Nasdaq-100 index, which serves as a proxy for tech stocks. However, the market could reward Applied Materials with a richer earnings multiple in the future if it can deliver stronger-than-expected earnings growth.

That's why savvy investors may want to buy this semiconductor stock while it is still trading at an incredibly cheap valuation, as it has the ability to go on a terrific bull run going forward.