Applied Materials, Inc. (NASDAQ:AMAT) is the world’s leading semiconductor equipment maker. That means it’s the biggest company making equipment to manufacture ever smaller, faster and more reliable chip sets.
It sells the chipmaking equipment that keeps companies like Intel Corporation (NASDAQ:INTC), Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM), Micron Technology Inc (NASDAQ:MU) and NVIDIA Corporation (NASDAQ:NVDA) going.
This business tends to be a feast-or-famine type affair, with a lot of range between those two positions. When chip sales are soft or there is a glut in the market, Applied Materials’ business dries up and its growth story — as well as the stock’s momentum — go right out the window.
Good Times for AMAT Stock
However, when demand is high, like it is right now, AMAT stock is a powerhouse. Demand is coming in from all sides as the computer industry is starting to flow out into all aspects of devices, even clothing.
The Internet of Things means that our houses, cars and watches are becoming not smart, but interconnected. The new wave in virtual reality and augmented reality is creating even more demand for better visual computing. Throw in the expanding cloud computing demand and Big Data growth, and you have yourselves a strong upside argument for AMAT stock for at least the next couple years.
One of the best aspects of Applied Materials is the fact that it is not dependent on any one sector of the semiconductor market. It provides products to firms that specialize in all manner of chip sets. This diverse base is also helpful when the sector growth slackens.
But that’s not an issue now. Now, it’s about how much can AMAT stock grow. And the answer to that for 2017 is, plenty.
In its Q4 filing in late November, earnings were up 39% year over year and AMAT raised guidance for Q1 2017. Part of its earnings bump was a $1.9 billion in share buybacks that happened during the fiscal year, but there was relatively little of that in Q4.
Q4 also saw new orders rise 25% – 23% for the year — backlog was up 46% and net sales were up 39%. And Applied Materials also guided higher for Q1, which it will report on Feb. 15.
The simple reality beyond the impressive numbers is, AMAT stock is in a significant growth cycle now. As long as the global economy continues to chug along, it is going to do very well. It’s up over 100% in the past 12 months, but it has yet to really hit its stride.
It also has a 1.1% dividend, to reinforce that the management is shareholder friendly.
IT research firm Gartner notes that while 2016 was a slow year for semiconductor growth, 2017 is expected to see a 7.4% increase in demand, and a chip undersupply through 2018. That is music to AMAT’s bottom — and top — line.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.