We came across a bullish thesis on Applied Materials, Inc. (AMAT) on Substack by Long-Term Pick. In this article, we will summarize the bulls’ thesis on AMAT. Applied Materials, Inc. (AMAT)'s share was trading at $158.07 as of Feb 28^th. AMAT’s trailing and forward P/E were 20.66 and 17.01 respectively according to Yahoo Finance.

An aerial view of a modern fabrication center with equipment for producing semiconductor components.

Applied Materials (AMAT) continues to dominate the wafer fabrication equipment market, leveraging its leadership in semiconductor advancements to drive growth. CEO Gary Dickerson highlighted the company’s record Q1 2025 performance, driven by AI-driven chip manufacturing and energy-efficient computing. AMAT remains at the forefront of semiconductor innovation, particularly in gate-all-around transistors, backside power delivery, and advanced packaging. The transition to gate-all-around nodes is expected to be a key revenue driver, with potential sales growth of 30% for equivalent wafer fab capacity.

Total net sales for the quarter reached $7.2 billion, with a non-GAAP EPS of $2.38, reflecting 12% year-over-year growth. This was fueled by a favorable product mix, widespread adoption of next-generation semiconductor technologies, and strict cost controls. The Semiconductor Systems segment contributed $5.36 billion in revenue, marking a 9% annual increase, with foundry logic sales rising 20%. However, DRAM sales declined due to lower demand from China. Applied Global Services (AGS) generated $1.59 billion in revenue, up 8% year-over-year, supported by service growth despite a decline in 200mm equipment sales. The division maintained a healthy 28% non-GAAP operating margin.

Free cash flow for the quarter stood at $544 million, with shareholder returns totaling $1.6 billion through share repurchases and dividends. Cash and equivalents at the end of the quarter amounted to $6.3 billion. For Q2 2025, AMAT projects revenue of $7.1 billion, plus or minus $400 million, and a non-GAAP EPS of $2.30, plus or minus $0.18. Semiconductor Systems revenue is expected to remain strong at approximately $5.3 billion, reinforcing the company’s growth trajectory.

Advanced packaging remains a significant driver of future expansion, with management outlining plans to double revenue in this segment in the coming years. Gate-all-around revenue is also set to double in 2025 from the $2.5 billion recorded in 2024, reflecting its increasing adoption. However, geopolitical risks persist, as CFO Hill noted that revenue from China is projected to decline by five percentage points in Q2 due to heightened trade restrictions.

Despite short-term challenges, AMAT remains well-positioned for long-term growth, benefiting from its leadership in semiconductor innovations and disciplined capital allocation. Shares currently trade around $172, approximately 8% below estimated fair value, presenting a potential opportunity for investors.

Applied Materials, Inc. (AMAT) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 80 hedge fund portfolios held AMAT at the end of the fourth quarter which was 74 in the previous quarter. While we acknowledge the risk and potential of AMAT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMAT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.