Applied Materials (AMAT) stock price has moved into a deep bear market as concerns about the semiconductor industry continued. It has crashed by more than 25% from its highest point this year and is hovering near its lowest point since April.

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Semiconductor woes continue

The semiconductor industry has been doing well in the past few months, helped by the ongoing demand from the artificial intelligence industry.

Recently, however, there are signs that the industry is not doing well as most stocks in the sector have pulled back.

Nvidia shares have collapsed by over 25%, erasing billions of dollars. Similarly, AMD has plunged by more than 43% while Arm Holdings, the licensing and royalties giant, has moved down by over 37%. Just this week, Super Micro Computer published weak results.

Intel stock has been the worst performer as the bruised published weak results and started laying off thousands of workers. As a result, ETFs that track chip stocks like the iShares Semiconductor ETF (SOXX) and the VanEck Semiconductor ETF (SMH) have fallen by over 20%.

AMAT stock has not been spared

Applied Materials stock has not been spared in this semiconductor stock sell-off as it crashed from $256 to $190. 

For starters, Applied Materials is a leading company in the chip industry that builds several important items that are used by companies like Intel, Nvidia, and Taiwan Semiconductor.

It manufactures wafers, which are the building blocks of integrated circuits that are used across industries like data centers and smartphones. Its other solutions are in the display sector, where it makes technologies used in televisions and other display solutions.

It operates its business in three segments, Applied Global Services, Display, and Adjacent Markets. 

Applied Material’s business has been growing pace in the past few years, helped by the strong demand for chips in industries like Bitcoin mining, AI, gaming, and autonomous vehicles. Its annual revenue has soared from over $14 billion in 2019 to $26 billion in 2023. AMAT’s annual profits have soared from $2.7 billion to over $6.8 billion in this period.

Applied Materials earnings ahead

The next important AMAT stock catalyst will be its financial results, which are scheduled for Thursday next week. These numbers will provide more information on whether its business is doing well.

The most recent results showed that its revenue came in at $6.5 billion, flat from the same period in 2023. Its gross margins expanded slightly to 47.4% while the net income rose by 9% to $1.7 billion. 

In its guidance, the management guided to $6.65 billion in revenues and its EPS being between $1.83 and $2.19. The average revenue estimate for the company is $6.67 billion while its full-year revenue number will be $26.93 billion, a 1% increase from 2023. 

These results confirm that the company’s business was not growing as it did in the past, which is a sign that the industry is slowing. 

At the same time, there are geopolitical risks that could spur competition across all its products. For one, China is now investing billions of dollars to wean itself America’s technology. 

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Valuation concerns remain

The most recent blended earnings growth of the S&P 500 index is 11%, its highest level in over two years. At the same time, the blue-chip index has a forward P/E ratio of 21.

In contrast, Applied Materials is no longer growing and has a forward P/E ratio of 21, which is a sign that the company is a bit overvalued. The other risk is that we are at the top of the semiconductor boom, a highly cyclical industry.

Despite these issues, analysts are still bullish on the Applied Materials stock. Barclays upgraded the company from underweight to equal-weight in May while Wells Fargo and Cantor Fitzgerald have an overweight rating. 

The average estimate of the Applied Materials stock price is $247, much higher than the current $198. This implies a big 30% increase from the current level.

Applied Materials stock price forecast

(Click on image to enlarge)

AMAT stock chart by TradingView

The daily chart shows that the AMAT share price peaked at $256 in July as demand for semiconductor companies was rising. It has now moved into a bear market as it dropped by over 25% from its highest level this year.

The 50-day and 100-day Exponential Moving Averages (EMA) have formed a bearish crossover pattern. It is also hovering at a key support, which was its lowest level on April 22nd.

Meanwhile, oscillators like the Klinger Oscillator, Relative Strength Index (RSI), and the Percentage Price Oscillator (PPO) have all pointed downwards. Therefore, the path of the least resistance for the Applied Materials stock is lower, with the next point to watch being at $150. On the flip side, with so much negative being priced in, there is a likelihood that it will bounce back to $200.

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