Applied Materials: 50 Years of Research

05/15/2017 2:50 am EST


Richard Moroney

Editor, Dow Theory Forecasts

Applied Materials (AMAT) was around for the birth of the modern semiconductor, creating the first commercial system for depositing silicon dioxide on a chip in 1967, explains Richard Moroney, editor of Dow Theory Forecasts.

In the ensuing years, Applied Materials was an early mover in the market for equipment that made LED screens, and a pioneer in the use of chemical vapor, and later plasma vapor, to make semiconductors.

Of course, you won’t make money buying yesterday’s leader — unless it’s also today’s leader. In the last year, Applied Materials spent more than $1.5 billion (13% of revenue) on research & development to help it keep current.

Today, the company says its products provide “atomic-level precision” for etching three-dimensional semiconductors. Indeed, as the world’s biggest semiconductor-equipment maker, Applied Materials owns a piece of just about every pie.

In recent quarters, the company has released new products to deal with industry trends such as the rise of 3-D NAND memory and increasing demand for OLED technology (light-emitting diodes that use an organic film) in mobile devices.

Applied Materials has also found big opportunity in the "small". The company is shrinking chip sizes (some as small as 10 nanometers). A nanometer is a billionth of a meter.

Fifty years of history suggests Applied Materials can remain at the front edge of technological advancements, which gives us confidence in the company’s future growth. Analysts expect 52% growth in per-share profit this year, followed by 6% in fiscal 2018 ending October.

In the last seven quarters, Applied Materials spent $7.8 billion on stock buybacks, reducing its share count 12%. Management expects continued buybacks going forward. Applied Materials earns a Quadrix Overall score of 97 out of a possible 100. The stock is a Long-Term Buy.

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