Key Takeaways
- Summit Insights cut Applied Materials to Hold on Nov. 13, a day after a record quarter, with the stock 47% below its June high.
- Summit expects cleanroom limits and a 2027 budget tilt toward ASML’s lithography tools to cap Applied’s upside.
- ASML expects supply shortages in 2027 and 2028 despite expanding capacity; whether that limits the spending shift Summit predicts remains uncertain.
- Earnings estimates have risen since June, and the stock trades at its 5-year average multiple.
Applied Materials (AMAT) just reported the best quarter in its history, and Summit Insights downgraded it anyway. Analyst Kinngai Chan cut it to Hold from Buy on Nov. 13, with no price target. The shares closed at $380.95 on Nov. 12, 47% below their June 30 high of $723.
Summit had upgraded Applied to Buy in February. Its reason for stepping aside isn’t demand. It’s how much of next year’s spending goes to ASML (ASML) instead.
Summit Thinks Applied Gets the Smaller Slice
Summit still expects Applied to grow in fiscal 2027, but Chan argues that limited cleanroom space will cap how many tools chipmakers can install, and that their 2027 budgets will favor ASML’s lithography tools over Applied’s etch and deposition gear. In Summit’s view, the industry’s growth is largely priced in.
Bank of America also cut its target that morning, to $520 from $650, but kept its Buy rating.
Applied Materials’ Quarter Gave Summit Little to Argue With
Revenue rose 53% to a record $10.41 billion in the quarter ended Oct. 25, and non-GAAP EPS rose 92% to $4.16, according to the company’s release. Applied guided its fiscal first quarter to $11.1 billion of revenue and $4.35 of EPS, both about 2% above consensus, according to BofA. Management even shares part of Summit’s worry: CFO Brice Hill called cleanroom capacity “a gating factor” on the call.
TIKR Tracks 40 Analysts on Applied Materials. How Many Say “Buy”?
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ASML’s Shortage Cuts Both Ways
I part ways with Summit on the mix. CEO Gary Dickerson said leading-edge foundry-logic, DRAM and advanced packaging, where Applied is strongest, “are expected to be the fastest-growing parts of wafer fab equipment in 2027.”
And ASML said in its Oct. 14 results that “our supply as currently planned for both 2027 and 2028 will not fully meet the demand of our customers.”
That doesn’t settle the mix. ASML is short even after planning to add 30% to its low-NA EUV and DUV immersion capacity in 2027, so lithography spending could still grow faster than Applied’s while staying supply-constrained. The shortage caps what ASML can ship, not how chipmakers split their budgets.
Is the Stock Still Priced for a Boom?
The Street’s average target is $623, 64% above the Nov. 12 close:
Estimates kept climbing through the selloff. At the June peak, analysts expected $16.40 of normalized EPS for fiscal 2027. Now they expect $18.75, and $24.07 for fiscal 2028:
On Nov. 12, Applied traded at 21x forward earnings, in line with its 5-year average and down from 49x on June 30:
Summit Is Late to the Caution
The risk is a turn in the cycle. This multiple bottomed at 9.6x in October 2022, and slower spending next year could take the stock much lower.
But Summit is turning cautious after a 47% drop, with estimates still rising. Much of its worry is already in the price.
The next test is February’s fiscal first-quarter report. Revenue at or above the $11.1 billion midpoint would show chipmakers still have room for Applied’s tools. A shortfall would make Summit look well timed.
So What Is Applied Materials Stock Actually Worth?
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