Semiconductor equipment maker Applied Materials (AMAT) has benefited from rising capital spending this year, but not as much as many industry peers. One Wall Street analyst sees chip-gear spending trends shifting in favor of Applied Materials in 2021. He rates AMAT stock as a “top pick.”
Specifically, Needham analyst Quinn Bolton on Wednesday raised his price target on AMAT stock to 110 from 82. He reiterated his buy rating on Applied Materials and added it to the firm’s “Conviction List.” He named AMAT stock as his top pick in the semiconductor equipment segment.
On the stock market today, AMAT stock rose 3.2% to 86.98.
Gear for Nand flash memory chips has driven semiconductor equipment spending of late, Bolton said in a note to clients. But Nand is the weakest segment for Applied Materials.
‘Tide Is Turning’ For Applied Materials
“However, we believe the tide is turning,” Bolton said. “We expect the DRAM and foundry/logic segments will lead WFE (wafer fabrication equipment) growth and the Nand segment will lag in 2021-2022, resulting in a WFE mix that plays to AMAT’s strength,” he said. DRAM refers to dynamic random-access memory.
Applied Materials’ revenue growth the last four years has paled in comparison with that of peers Lam Research (LRCX) and ASML (ASML), Bolton said. Lam has benefited from heightened Nand equipment sales. ASML has surged on sales of extreme ultraviolet lithography equipment.
“In 2021-2022, we believe the industry will see the next technology inflection in DRAM,” Bolton said. “By segment, we estimate DRAM WFE will grow by about 20% in 2021, while Nand WFE will stay approximately flat and foundry/logic will grow by a mid-single-digit percentage.”
Overall, he expects wafer fabrication equipment spending to rise in the high single-digit percentage range in 2021. Bolton predicts that Applied Materials will see semiconductor systems revenue grow by about 10% year over year in 2021.
AMAT Stock On Two IBD Watchlists
Additionally, AMAT stock is tied for second place in IBD’s semiconductor-equipment industry group, according to the IBD Stock Checkup tool. It has an IBD Composite Rating of 98 out of 99. IBD’s Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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