Applied Materials (NASDAQ:AMAT) Surprises With Q1 Sales, Stock Soars
Maker of machinery employed in semiconductor manufacturing, Applied Materials (NASDAQ:AMAT) reported results ahead of analysts' expectations in Q1 FY2024, with revenue flat year on year at $6.71 billion. Guidance for next quarter's revenue was also optimistic at $6.5 billion at the midpoint, 2.7% above analysts' estimates. It made a non-GAAP profit of $2.13 per share, improving from its profit of $2.03 per share in the same quarter last year.
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Applied Materials (AMAT) Q1 FY2024 Highlights:
Revenue: $6.71 billion vs analyst estimates of $6.49 billion (3.4% beat)
EPS (non-GAAP): $2.13 vs analyst estimates of $1.91 (11.8% beat)
Revenue Guidance for Q2 2024 is $6.5 billion at the midpoint, above analyst estimates of $6.33 billion
Free Cash Flow of $2.10 billion, up 68.2% from the previous quarter
Inventory Days Outstanding: 147 in line with previous quarter
Gross Margin (GAAP): 47.8%, up from 46.7% in the same quarter last year
Market Capitalization: $154.9 billion
“Applied Materials delivered strong results in the first quarter of fiscal 2024 and has outperformed our markets for the fifth consecutive year,” said Gary Dickerson, President and CEO.
Founded in 1967 as the first company to develop tools for other businesses in the semiconductor industry, Applied Materials (NASDAQ:AMAT) is the largest provider of semiconductor wafer fabrication equipment.
Semiconductor Manufacturing
The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.
Sales Growth
Applied Materials's revenue growth over the last three years has been mediocre, averaging 14.4% annually. This quarter, its revenue declined from $6.74 billion in the same quarter last year to $6.71 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
Even though Applied Materials surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 0.5% year on year. This could mean that the current downcycle is deepening.
Applied Materials may be headed for an upturn. Although the company is guiding for a year-on-year revenue decline of 2% next quarter, analysts are expecting revenue to grow 1.4% over the next 12 months.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Applied Materials's DIO came in at 147, which is 4 days above its five-year average, suggesting that the company's inventory levels are higher than what we've seen in the past.
Key Takeaways from Applied Materials's Q1 Results
We were impressed by how significantly Applied Materials blew past analysts' EPS expectations this quarter. We were also excited its revenue outperformed Wall Street's estimates. Overall, we think this was a really good quarter that should please shareholders. The stock is up 6.9% after reporting and currently trades at $200.54 per share.
Applied Materials may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
