Applied Materials, Inc. (AMAT) Stock Is the REAL Winner in Semiconductors

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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.

Applied Materials, Inc. (AMAT) Stock Is the REAL Winner in Semiconductors

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.

Overall, June implieds are pricing in a potential move of about 7.3% for AMAT stock heading into expiration. This places the upper bound near $47, while the lower bound rests near $40.

Applied Materials AMAT stock
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Traders should keep in mind that implieds could decline in the wake of this morning’s quarterly, making options a bit cheaper once the stock settles down.

2 Trades for AMAT Stock

Call Spread: Follow-through buying is definitely a possibility for AMAT stock, especially with analysts still to weigh in on the report. With the potential for price-target increases high, traders looking to bet on an extended rally might want to consider a June $45/$47 bull call spread.

At last check, this spread was offered at 58 cents, or $58 per pair of contracts. Breakeven lies at $45.58, while a maximum profit of $1.42, or $142 per pair of contracts, is possible if Applied Materials stock closes at or above $47 when June options expire.

Put Sell: There is a considerable amount political risk in the market right now thanks to the Trump administration. As such, more risk-averse traders might want to consider a more neutral-to-bullish stance on AMAT. Currently, the June $39 put stands an excellent chance of finishing out of the money.

At last check, this put was bid at 25 cents, or $25 per contract. If shares closes at or above $39 by expiration, traders entering this position will retain the premium received for opening the position.

However, if AMAT stock trades below $39 ahead of expiration, traders may be assigned 100 shares at a price of $39 per share for every contract sold.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/applied-materials-inc-amat-stock-is-the-real-winner-in-semiconductors/.

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