Why Applied Materials Stock Just Jumped 7%


Applied Materials (NASDAQ: AMAT) shares are moving higher Friday morning, up 6.7% through 10:20 a.m. ET after the manufacturer of equipment for semiconductors production reported better-than-expected Q1 2024 sales and earnings last night.

Heading into earnings day, analysts had forecast Applied Materials would earn $1.91 per share on sales of $6.5 billion. Applied beat both targets, reporting more than $6.7 billion in sales and a per-share profit of $2.13.

Applied Materials earnings report

And this news just keeps getting better. It turns out that “$2.13” was only Applied Materials’ non-GAAP earnings. When calculated according to generally accepted accounting principles (GAAP), Applied Materials actually earned $2.41 per share.

The company’s sales actually declined slightly in comparison to Q1 2023. However, with overall gross profit margins rising 110 basis points (and operating margins up slightly), Applied Materials was able to translate a no-sales-growth quarter into profits up 19% year over year.

How did that happen? Well, Applied’s two biggest business segments are selling manufacturing systems for semiconductors and providing “services” to those systems. The former is usually (and still) the more profitable business. But in Q1, Applied Materials made significant improvements in operating profit margin (up 310 basis points to 28.3%) in its services segment. That better profitability in services seems to have given the company the profit boost it needed.

Applied Materials guidance

And the news could get better still. Turning to guidance, Applied Materials told investors it expects fiscal Q2 2024 revenue to range from $6.1 billion to $6.9 billion. At the midpoint of $6.5 billion, that’s $200 million more in revenue than Wall Street has been predicting.

Likewise for earnings. Analysts are forecasting only a $1.79 per share non-GAAP profit for Applied Materials. But the company is guiding to non-GAAP profits of at least $1.79 and potentially as high as $2.15.

Translation: After beating earnings in Q1, Applied Materials just promised to beat earnings in Q2 as well. No wonder investors are happy.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Applied Materials. The Motley Fool has a disclosure policy.

Why Applied Materials Stock Just Jumped 7% was originally published by The Motley Fool

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