Applied Materials 2025 rise 40%, why is it still underperforming compared to its peers?

Applied Materials (AMAT) has risen 40% this year, which looks good, but it seems a bit awkward in the circle of semiconductor equipment manufacturers. A quick comparison shows that Lam Research (LRCX) skyrocketed 107%, ASML pumped 54%, and KLA rose 83%. How did AMAT end up being so underwhelming?

The financial report is good, but expectations were low to begin with.

In November, AMAT released its Q4 financial report, with sales of $6.8 billion, a year-on-year decline of 3.5%; adjusted EPS fell by 6.5%. It sounds bad, but unexpectedly - both figures beat expectations. The reason is simple: after the last financial report, it dropped by 14%, and Wall Street's expectations had already been driven down very low.

More heartbreaking data: AMAT's revenue growth rate over the past 12 months is only 4.4%, while the other three are at 22%-26%. This reflects a problem - AMAT hasn't benefited in a lucrative market.

For example, the NAND chip equipment market is expected to double, but AMAT only accounts for 6% of the revenue in this area, while LRCX has 18%. The advanced process technology sector is monopolized by ASML, and AMAT cannot participate. In simple terms, AMAT has encountered the cycle of the equipment industry—various equipment demands are misaligned, and currently, it is not AMAT's opportunity.

Risk Mitigation in China, Long-term Logic Remains

Previously, export controls were a stone weighing down on AMAT. China's equipment spending is actually quite robust, but AMAT cannot benefit from it. The good news is: new regulatory expectations are unlikely to arise, and the past impacts have basically been fully released.

Why is it still worth watching?

AMAT is not technologically outdated; it has just been temporarily left behind by the cycle. Looking at the free cash flow growth rate over the past decade, AMAT and the other three companies are around 20% annually. In other words—when the market turns to upgrade other types of equipment, AMAT's growth will definitely rebound.

This also explains why AMAT can still rise by 40% in 2025: the market has actually understood this logic. The current valuation is 24 times the dynamic PE, which is 27% higher than the average level of the past three years, not cheap, but from a long-term perspective, this company's growth story is not over yet.