Business Description

Applied Materials is the world’s largest supplier of semiconductor manufacturing equipment, providing materials engineering solutions to help make nearly every chip in the world. The firm’s systems are used in nearly every major process step with the exception of lithography. Key tools include those for chemical and physical vapor deposition, etching, chemical mechanical polishing, wafer- and reticle-inspection, critical dimension measurement, and defect-inspection scanning electron microscopes.

Recommendation (Nov 2020)

A great business that is fairly or slightly overvalued.

$77.25 per share implies that AMAT will grow its revenue and NOPAT at a CAGR of 10% over the next 9 years. Not an implausible expectation for the company.

If we assume that EPS will grow between 12-18% CAGR for 5 years and that AMAT will trade at a PE multiple of 15x in 2025, then the implied Investor Return would be between 9-15%.

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