Investment Thesis
Applied Materials is one of the largest and most successful semiconductor manufacturing companies in the world. The company is benefitting from a variety of tailwinds such as IoT, AI, and cloud computing that will drive long-term growth for the company. Applied Materials is well positioned to meet the demand for an increasingly more complex production process across IoT, AI, and cloud computing.
Company Description
Applied Materials, Inc. develops, manufactures, markets, and services semiconductor wafer fabrication equipment and related spare parts for the worldwide semiconductor industry. The company's customers include semiconductor wafer and integrated circuit manufacturers and other electronic devices manufacturers.
Some Key Metrics
Metric | Data Point |
|---|---|
Return on Invested Capital (5Yr Avg.) | 28.09% |
5 Yr. CAGR of EPS Growth | 33.3% |
FCF Yield | 6.1% |
Net Debt/EBITDA | 0.23 |
Durability of Business
Applied Materials has a 16.8% market share in the global semiconductor equipment industry. Applied is also the market leader in the equipment manufacturing for Foundry/Logic, DRAM, and Integrated Solutions. AMAT is well positioned in the market working with some of the most notable technology players in the industry. Global diversification of revenue sets them to grow with the world's technology market instead of isolating themselves to certain geographical regions. Strong ecosystem ties into their innovation as they can consistently build solutions for an industry that is requiring more and more complex manufacturing.
Applied Materials is well positioned to capture growth from the exponential growth in data generation. The company predicts that thanks to Industrial IOT, Automotive, and Home IOT data generation will 10x just in the next 5 years. The company also predicts that artificial intelligence will help unlock another $500 billion in new markets for semiconductors just in the next 10 years. All of this growth starts with the equipment that Applied Materials provides to semiconductor companies.
Management:
Overall high quality of management. Most executives have been at the company for a considerable amount of time and have had high caliber careers before coming to Applied Materials.
Research by: Raymond Kanyo, CFA