Applied Materials Inc (AMAT) should be viewed as an undiscovered artificial intelligence (AI) play, as AI chips are driving the size of chips larger, according to Jefferies analysts.
In an update to clients, they noted the semiconductor equipment maker remains a top pick after its 4Q results and outlook topped estimates, while also expecting its stock to trade at a 20% premium to the S&P 500 over the next several years as the market appreciates its secular drivers.
The analysts believe the larger semiconductor makers, including Intel, AMD, and Nvidia, are shipping well below their historical trend-line, setting up for a V-shaped snapback recovery that will translate to higher equipment demand.
They added that most investors are underestimating the potential for a V-shaped recovery, which is often what happens after a material inventory correction.
As well, AMAT saw its revenue from China climb 71% quarter over quarter and the analysts at Jefferies wrote that their channel checks suggest that the China investments will continue in 2024, driven by growing demand for trailing nodes and push to manufacture locally.
Shares of Applied Materials fell 5% to $146.72 in midday trading on Friday but have gained 52% year to date.
Contact Sean at sean@proactiveinvestors.com