Semiconductor-equipment maker Applied Materials (AMAT) sits at the center of the global economy’s digital transformation, where even an activity as simple as pouring concrete for a new highway can require semiconductor-powered devices, notes Richard Moroney, editor of Dow Theory Forecasts.

The stock — my Top Pick for 2021 — has risen 56% so far this year. Driving demand further is the trend that everything from smartphones to servers to cars requires more semiconductor content than their predecessors.

For the April quarter, earnings per share surged 74% to $1.63 excluding special items, topping the consensus of $0.12. Revenue, up 41% to $5.58 billion, also exceeded the consensus.

Both gross profit margin and operating profit margin expanded to their highest levels since at least 1993. Cash from operations jumped 87%, the fourth straight quarter of double-digit growth. Free cash flow more than doubled to $781 million.

For the July quarter, management expects adjusted per-share profits of $1.70 to $1.82, good for growth of 60% to 72%. Revenue is projected to range from $5.72 billion to $6.12 billion, up 30% to 39%. At the time of the announcement, consensus estimates called for earnings per share of $1.55 and revenue of $5.52 billion.

In February, management had expected the semiconductor-equipment market to reach $70 billion to $73 billion in 2021, implying growth of about 14% to 19% But with demand strengthening further, Applied Materials now sees the market reaching $77 billion to $79 billion, suggesting 26% to 29% growth.

Recall, the semiconductor-equipment market expanded 19% to $61.2 billion last year, while Applied Materials grew 23% to take roughly a 20.5% share. Applied Materials expects to significantly outgrow the market in 2021.

With semiconductor supply shortages expected to persist through the first half of 2022, the semiconductor-equipment market looks positioned to keep growing next year.

Insisting that secular trends are creating sustainable demand, Applied Materials says the semiconductor industry’s upswing remains in the early innings and should continue over the next decade.

After a strong start to 2021, Applied Materials shares dipped — part of a broad sell-off within the technology sector. The stock soon reversed course, rebounding to trade within 5% of its record high. We see room for the stock to run higher, and AMAT remains a Focus List Buy and a Long-Term Buy.

Subscribe to Dow Theory Forecasts here…