Shares of Applied Materials declined following the release of financial results after the closing bell on Thursday.
Shares of Applied Materials fell after the semiconductor giant reported results after the close of trading on Thursday - and analysts are calling the slump a buying opportunity.
The Santa Clara, Calif.-based company's stock tumbled more than 5% in premarket trading, following a decline of almost 3% the previous day.
Applied Materials $(AMAT)$ posted revenue of $9.1 billion, up 25% on a year-on-year basis and higher than Wall Street consensus of $8.99 billion, according to FactSet. Earnings per share came in at $3.50, beating the consensus estimate of $3.40.
Analysts at KeyBanc Capital Markets, led by Steve Barger, noted that shares may be down on the company's guidance for the next quarter. It said it expects revenue to reach $10.36 billion for the current three-month period, which would mark an increase of over 50% from a year before, but investors have grown to have exceedingly high expectations for companies in the artificial-intelligence space.
The analysts wrote in a note on Thursday that Applied Materials also faced gross-margin pressure in the near term because of its boost in capital expenditures, a factor that may have also spooked traders.
Yet for KeyBanc Capital Markets these two perceived issues create "an opportunity for investors who appreciate the revenue and EPS implications of doubling capacity into the strongest catalyst the industry has likely ever seen."
Chief Financial Officer Brice Hill said on the company's earnings call Thursday that Applied Materials is currently planning to double quarterly semiconductor-system output by 2028, with expansions planned for operations and employee headcount to make sure the group has "the option to support further increases in demand by 2030."
On the back of Applied Materials' results, JPMorgan lifted its price target from $515 to $660 for the coming year.
Analysts at the bank led by Harlan Sur said Friday that growth at the company within the next three years will likely be driven by expanded market share, a growing portfolio of products, additional revenue opportunities, selling more items to existing customers, a rise in spending on equipment per wafer produced and exposure to display manufacturers.
Jefferies maintained its price target of $770 for the stock for 2027, after lifting that target from $510 at the end of June.
"We believe the results reinforce both the magnitude and durability of AMAT's AI driven growth, with a strong setup for another strong year in [calendar year 2027]," analysts led by Blayne Curtis, wrote in a note on Thursday.
-Nora Redmond