Applied Materials, Inc. AMAT has surged an impressive 16% over the past month, outperforming not only the Zacks Electronics - Semiconductors industry but also the broader S&P 500 and the Technology Select Sector SPDR Fund ETF. The stock has also outperformed other industry players, including Broadcom Inc. AVGO, Marvell Technology, Inc. MRVL and FormFactor, Inc. FORM.

One-Month Price Return Performance

Image Source: Zacks Investment Research

This remarkable rally has left investors pondering whether it’s time to lock in gains or hold on to this semiconductor leader. Here’s why holding AMAT stock remains the smarter choice.

AMAT’s Technological Leadership Fuels Growth

Applied Materials’ strategic focus on advanced semiconductor nodes positions it at the forefront of industry innovation. Revenues from advanced nodes surpassed $2.5 billion in fiscal 2024, with management projecting a doubling by fiscal 2025, driven by booming demand in artificial intelligence (AI), high-performance computing (HPC) and 5G technologies.

Applied Materials’ diversification into advanced packaging technologies has been a game-changer. Revenues in this segment tripled over four years, reaching $1.7 billion in fiscal 2024. With system-on-chip designs gaining prominence across industries, AMAT’s relevance in this domain remains unshaken.

Moreover, the company’s initiatives, like the EPIC platform and Silicon Valley EPIC Center, highlight its dedication to supporting customer innovation while optimizing costs. These moves further cement its leadership in semiconductor manufacturing and underscore its ability to thrive in a competitive market.

AMAT’s Financial Resilience Amid Industry Headwinds

Despite challenging market conditions, Applied Materials has delivered robust financial performance. In the fourth quarter of fiscal 2024, the company reported revenues of $7.05 billion, up 5% year over year, beating the Zacks Consensus Estimate by 1.5%. Non-GAAP earnings per share (EPS) climbed 9% to $2.32, exceeding estimates by 6.4%.

The company’s gross margin of 47.5%, a 20-basis point improvement, underscores operational efficiency even as it invests heavily in advanced technologies. With the Zacks Consensus Estimate projecting revenue growth of 8% in fiscal 2025 and 6.8% in fiscal 2026, alongside EPS growth of 8.4% in both years, Applied Materials is on track to sustain its momentum.

Additionally, the company has consistently outperformed earnings expectations, delivering an average surprise of 7.5% over the last four quarters, reflecting its strong execution capabilities.

Find the latest earnings estimates and surprises on Zacks Earnings Calendar.

Valuation Signals Upside Potential for AMAT Stock

Applied Materials trades at a forward 12-month P/E multiple of 20.46X, well below the Zacks Electronics - Semiconductor industry average of 34.94X. The stock also trades at a lower P/E multiple than its industry peers, including Broadcom, Marvell Technology and FormFactor. AVGO, MRVL and FORM currently have a forward 12-month P/E multiple of 36.69X, 46.96X and 26.87X, respectively. This valuation discount makes AMAT an attractive pick for value-conscious investors.

Forward 12-Month Price-To-Earnings Ratio

Image Source: Zacks Investment Research

Moreover, the stock’s upward momentum is supported by its technical positioning. Trading above its 50-day moving average, AMAT shows strong bullish sentiment, with technical indicators suggesting further upside potential.

50-Day Moving Average Signals Uptrend

Image Source: Zacks Investment Research

Short-Term Challenges for AMAT

Despite its strengths, AMAT faces challenges from cyclical downturns in the DRAM and NAND memory markets, where weak pricing and delayed capital spending have dampened growth. Geopolitical tensions, particularly U.S.-China trade restrictions, pose risks to the company’s significant revenue base in China.

Broader macroeconomic concerns, including inflationary pressures and high interest rates, add another layer of uncertainty.

Conclusion: Hold AMAT Stock for Now

Applied Materials’ technological leadership, financial resilience and attractive valuation make it a compelling long-term investment. While short-term challenges exist, the company’s strong positioning in advanced nodes, packaging technologies and AI-driven demand offsets these risks.

Investors should hold AMAT stock as it continues to benefit from secular growth drivers, operational efficiency and expanding end-market opportunities. Applied Materials carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

FormFactor, Inc. (FORM) : Free Stock Analysis Report

Applied Materials, Inc. (AMAT) : Free Stock Analysis Report

Marvell Technology, Inc. (MRVL) : Free Stock Analysis Report

Broadcom Inc. (AVGO) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research