Stock Analysis & Valuation Applied Materials, Inc. (AP2.DE)

• Previous Close: €279.90
• Sector Valuation Confidence Level: Low

Valuation method	Value, €	Upside, %
Artificial intelligence (AI)	140.00	-50
Intrinsic value (DCF)	91.71	-67
Graham-Dodd Method	34.80	-88
Graham Formula	78.30	-72

Strategic Investment Analysis

Company Overview

Applied Materials, Inc. (AP2.DE) is a global leader in providing manufacturing equipment, services, and software to the semiconductor, display, and related industries. Headquartered in Santa Clara, California, the company operates through three key segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. Applied Materials plays a pivotal role in the semiconductor supply chain, offering cutting-edge technologies such as epitaxy, ion implantation, chemical vapor deposition, and atomic layer deposition, which are essential for producing advanced semiconductor chips. The company also provides critical services to optimize fab performance, including equipment upgrades, remanufacturing, and automation software. With a strong presence in key markets like the U.S., China, Taiwan, and South Korea, Applied Materials is a cornerstone of the global tech ecosystem, enabling innovations in AI, 5G, and IoT. Its diversified revenue streams and leadership in semiconductor manufacturing equipment make it a vital player in the high-growth semiconductor industry.

Investment Summary

Applied Materials presents a compelling investment case due to its dominant position in the semiconductor equipment market, strong financial performance (€27.2B revenue, €7.2B net income in FY 2024), and robust cash flow generation (€8.7B operating cash flow). The company benefits from long-term secular trends in semiconductor demand, driven by AI, IoT, and advanced computing. However, investors should consider risks such as cyclicality in semiconductor capex, geopolitical tensions (particularly U.S.-China trade restrictions), and high beta (1.705), indicating above-market volatility. The company’s healthy balance sheet (€8B cash) and consistent dividend (€1.50/share) add stability, but reliance on a few key customers and regions could pose concentration risks.

Competitive Analysis

Applied Materials holds a leading position in the semiconductor equipment market, competing primarily with ASML, Lam Research, and Tokyo Electron. Its competitive advantage stems from its broad product portfolio, which covers nearly every critical step in chip manufacturing, from deposition to etching and metrology. Unlike ASML, which dominates EUV lithography, Applied Materials excels in deposition and materials engineering, giving it a stronghold in advanced logic and memory chip production. The company’s Applied Global Services segment provides sticky, high-margin recurring revenue, differentiating it from pure-play equipment vendors. However, Lam Research and Tokyo Electron are strong rivals in selective deposition and etch technologies, while KLA Corporation leads in inspection and metrology. Applied’s scale and R&D investments (€2.7B+ revenue in services) help maintain its edge, but competition in China from local players like AMEC and Naura poses a long-term threat. The company’s ability to integrate hardware with AI-driven process optimization software further strengthens its moat in an increasingly automated industry.

Major Competitors

• ASML Holding NV (ASML.AS): ASML is the undisputed leader in extreme ultraviolet (EUV) lithography, a critical technology for advanced semiconductor nodes. Unlike Applied Materials, ASML has a near-monopoly in EUV, giving it pricing power. However, ASML lacks Applied’s breadth in deposition and etch, making the two companies complementary in many respects. ASML’s high dependency on a single technology (lithography) contrasts with Applied’s diversified equipment portfolio.
• Lam Research Corporation (LRCX): Lam Research is a key competitor in etch and deposition, particularly in NAND and DRAM markets. It rivals Applied Materials in selective removal and atomic layer deposition but has a weaker presence in chemical mechanical planarization (CMP) and ion implantation. Lam’s focus on dry etch gives it an edge in certain advanced logic applications, but Applied’s broader product suite and services business provide more diversified revenue.
• Tokyo Electron Limited (8035.T): Tokyo Electron competes closely with Applied Materials in deposition and etch, with particular strength in coater/developer systems for lithography. Its partnership with ASML in EUV resist processing strengthens its position in advanced nodes. However, Tokyo Electron has less exposure to the services and display markets compared to Applied, making it more susceptible to semiconductor cyclicality.
• KLA Corporation (KLAC): KLA dominates the semiconductor process control market (inspection and metrology), a niche where Applied Materials is less prominent. KLA’s tools are critical for yield management, giving it strong pricing power. However, KLA lacks Applied’s breadth in front-end manufacturing equipment, making it more of a specialist player. Its recent acquisitions in AI-driven inspection strengthen its competitive position.
• Advanced Micro-Fabrication Equipment Inc. (AMEC): AMEC is a rising Chinese competitor in etch and MOCVD equipment, benefiting from China’s push for semiconductor self-sufficiency. While its technology lags behind Applied Materials in advanced nodes, it poses a long-term threat in the domestic Chinese market, especially amid U.S. export restrictions. AMEC’s cost advantage and government support make it a formidable regional rival.