Applied Materials Inc’s second-quarter results beat Street expectations last week, but analysts at UBS aren’t buying into the hype.
Despite posting earnings of $2 per share on revenue of $6.63 billion that topped estimates of $1.83 per share and $6.37 billion, respectively, UBS reiterated its 'Neutral' rating and $120 price target in a note published Thursday.
“At the risk of being seen as more of a stick in the mud than ever, we still fail to see why we should get excited on this stock,” analysts wrote.
The problem is the demand for semiconductors, particularly as China moves aggressively to become supply-chain independent, according to UBS.
“The tone on the segments of the market backed by real demand coming off [the 2Q earnings] call seems subtly worse while lagging edge demand — particularly from China — has suddenly inflected much higher,” analysts wrote. “Chip demand at these nodes has not magically taken off.”
They continued: “To some degree, this probably continues as long as export restrictions don't change again, but this will just take chip demand away from other regions currently spending money on [water fab equipment].”
A wafer fab is a semiconductor processing facility that turns wafers into integrated circuits.
Notably, Applied Materials indicated that global reshoring subsidies, which it estimates at $400 billion, will only add between 3% to 7% to wafer fab equipment (WFE) over the next five years, “effectively throwing cold water on the idea this entire reshoring phenomenon is substantially additive,” analysts wrote.
Shares of Applied Materials fell 1.5% to $124.63 on Tuesday afternoon.
“AMAT is doing a nice job in terms of technology development and innovation, we love the new investments it is making ... But ultimately, it's just hard to argue that we should be capitalizing the only really exciting aspect of the WFE outlook right now — China lagging edge — when there is scant evidence that it's economically supported,” the analysts added.
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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