Applied Materials (AMAT) Jumps to All-Time Highs

Shares of Applied Materials (NASDAQ: AMAT), the Californian semiconductor company, were up over 5% during Thursday’s session after the company reported impressive Q1 earnings. EPS and revenue both came in above analyst expectations with the latter showing growth of close to 11% year on year.

Their CEO, Gary Dickerson, was understandably upbeat when he said “Applied Materials’ first-quarter earnings exceeded the top-end of our guidance, giving us great momentum entering 2020. We believe we can deliver strong double-digit growth in our semiconductor business this year as our unique solutions accelerate our customers’ success in the AI-Big Data era.”

Investors have been buying into this momentum for months and shares rallied over 100% in 2019 alone. Thursday’s jump puts them up close to 14% for 2020 and comfortably at all-time highs. Wall Street will note with satisfaction that the stock has now convincingly cleared 2018’s and 2000’s high watermark which had been hanging over the company for some time. Both highs had been followed by a haircut in the region of 50-70% in the weeks afterward but things feel a little different this time.

A Rising Tide

The semiconductor industry has been on a rip this past year and in the eyes of many analysts, it’s only getting started. Cowen maintained its Outperform rating for AMAT last November and raised its price target to $75 a share. Their argument is based on investors being willing to pay upwards of 15x multiples on peak earnings which translates to about $75-80 a share. Even with Thursday’s move, this is still giving shares a 10% gap to fill and they look well able to do it. At about the same time as Cowen, Evercore and KeyBanc also raised their price targets for AMAT to $70.

Last September saw two heavyweights throw their lot in with the semiconductor industry too. Citi said they were taking a ‘more offensive stance’ on the basis of increasing prices and included AMAT in their list of top industry names while Wells Fargo noted the industry’s shift towards a recurring revenue model and felt stock prices had yet to price that benefit in accordingly. Specifically for AMAT, Wells Fargo pointed out that they have one of the largest installed bases among their peers and are well-positioned to increase market penetration.

A rising tide certainly floats all boats and AMAT’s peers like Lam Research (NASDAQ: LRCX), KLA Corporation (NASDAQ: KLAC) and Advanced Micro Devices (NASDAQ: AMD) have all been posting impressive numbers recently with many raising forward guidance in their earnings reports. Over the past decade, their stocks have all jumped triple-digit percentages and justifiably so.

LRCX is the clear outperformer since February 2010 with an 880% rally, while AMD, KLAC and AMAT are all around the 500% mark. When we tighten up the timeframe to the past 12 months, AMD shines brightest with a 130% move with the other names in the 70-90% range. Considering how aligned these companies are, any outperformance in one name is likely to benefit the others so seeing AMD pulling away on top should give AMAT investors something to aim for rather than something to be concerned about.

Getting Involved

Shares have taken a very orderly march higher since the start of last year and while they’re pulling away from the trend line with this week’s move, it’s understandable given recent results. The previous resistance around the $61 mark from prior highs now becomes support in tandem with the rising trend line in the event of any pullback.

With the RSI only at 68, there’s plenty of room yet for AMAT stock to make use of this week’s momentum to keep the run going.