Bull Of The Day: Applied Materials (AMAT)

Applied Materials (AMAT - Free Report), the giant semiconductor equipment maker, has seen its shares make an amazing recovery in 2019 -- even before the industry sales and profits confirmed their cycle lows.

To illustrate this, consider that in the middle of 2018, the EPS consensus for AMAT's next fiscal year (starting in Nov 2018) was $4.50. Then in the second half of 2018, estimates plunged on trade war worries and concerns that ole' bogey man, the semiconductor cycle, had just peaked.

Applied Materials, maker of wafer fabrication equipment (WFE) that helps chip companies like Micron (MU - Free Report) make their wares, completed their FY19 (ended October) with full year EPS of just $3.04. But long before then, AMAT shares surged nearly 60% from the low $30s to mid $50s.

2019 was certainly a confusing time to be a chip investor. And it didn't necessarily get easier to understand when AMAT reported their Q419 on November 14 and shares jumped to fresh all-time highs above $60 as the company revealed a healthy upside boost to 2020 earnings guidance.

My colleague Ben Rains wrote about the results last month...

Applied Materials is a semiconductor equipment firm that has been on a tear in 2019 despite the fact that its sales and earnings fell for four straight periods. The company with a $55 billion market cap is a leader in “materials engineering solutions” that are used to make “virtually every new chip and advanced display in the world.”

The Santa Clara, California-headquartered firm is, of course, not alone in the notoriously cyclical semiconductor and chip industry. Big-names such as Nvidia (NVDA - Free Report) also posted four straight periods of declining revenues. But this is not totally unusual for chip firms, especially when they come up against hard-to-compare periods of outsized success.

Luckily, Applied Materials and others such as industry giant Intel (INTC - Free Report) impressed Wall Street with their guidance. And the reason is relatively simple: everyone from Apple (AAPL - Free Report) to Microsoft (MSFT - Free Report) relies on semiconductors and they will remain essential backbones of the technological revolution for years to come.

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Kevin Cook is a Senior Stock Strategist for Zacks Investment Research where he runs the TAZR Trader and more

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