Applied Materials (AMAT) is positioned for a "beat and raise" quarter amid improved demand conditions and stronger supply chain, Morgan Stanley said in a Monday note.

The company is set to release its fiscal Q1 results on Feb. 12. Morgan Stanley said it expects Applied Materials to guide for a 3% to 4% sequential revenue growth in fiscal Q2, compared with the Street's 2% growth estimate.

Applied Materials' portfolio mix should normalize in 2026, and then become "favorable" in 2027, the investment firm said. According to Morgan Stanley, the company should grow in-line with the wafer fab equipment, or WFE, sector to narrow its current valuation discount.

Morgan Stanley raised its fiscal 2026 and 2027 estimates for Applied Materials based on its recent WFE outlook. The investment firm now estimates 2026 earnings of $11.17 per share on revenue of $32.2 billion, from its previous forecast if $10.10 in EPS on revenue of $30.4 billion.

Morgan Stanley also increased its price target for the company's stock to $364 from $273, while retaining its overweight rating.

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