Competition is heating up between the leading chip makers, and that means retooling and better, more advanced production equipment … music to the ears of Applied Materials, Inc. (NASDAQ:AMAT) investors. The world’s leading semiconductor equipment maker reported blowout fiscal second-quarter earnings Thursday night, and AMAT stock is riding higher Friday as a result.
Today, we have a pair of trades that will help you ride that upward momentum amid a growing war for market share between the world’s leading semiconductor manufacturers.
By the numbers, Applied Materials said it earned 79 cents per share in the quarter, up from 34 cents per share a year ago. Revenue jumped 44.9% to $3.55 billion. Analysts were expecting earnings of 76 cents a share on revenue of $3.53 billion.
What’s more, with Nvidia Corporation (NASDAQ:NVDA), Advanced Micro Devices, Inc. (NASDAQ:AMD) and Intel Corporation (NASDAQ:INTC) locked in probably the most heated battle for market share since the dotcom boom, Applied Materials’ outlook was well above Wall Street’s expectations.
AMAT issued third-quarter guidance of 79 cents to 87 cents per share on revenue of $3.6 billion to $3.75 billion, easily eclipsing the Street’s view for 68 cents per share on revenue of $3.41 billion.
“Across the company we have tremendous momentum as our markets are strong and getting stronger, and we’re sustainably growing faster than these markets by expanding our served opportunity and gaining share,” CEO Gary Dickerson said in the earnings announcement.
Applied Materials: Sentiment and Charts
That said, investors weren’t caught completely off guard by the strong report, as sentiment was already rather bullish on AMAT stock.
For instance, Thomson/First Call reports that 20 of the 23 analysts following AMAT stock rate it “buy” or better. But, there’s room for improvement as well, with the 12-month consensus price target of $43.89 arriving below Applied Materials’ current perch north of $44. Look for analysts to issue upgrades or price target increases to make up for the difference, potentially adding to the stock’s post-earnings rally.
In the options pits, speculative traders are betting big on AMAT stock. Currently, the June put/call open interest ratio comes in at 0.62, with calls nearly doubling puts among near-term options. Still, Applied Materials has already topped peak June call OI of 3,600 contracts at the $43 strike and could be bearing down on the 2,500 calls open at the $45 strike before the close today.
While some profit taking is to be expected following earnings, look for options traders to adjust their targets higher over the next several weeks.