TLDR
- Morgan Stanley cut its price target on Applied Materials to $563 from $642.
- The stock fell 1% before the opening bell on Monday.
- MS raised its 2027 revenue forecast to $50.7B and EPS forecast to $20.92.
- The firm lowered its valuation multiple on the stock to 22x from 26x.
- AMAT trades well above its GF Value, with insiders net sellers over the past 12 months.
Applied Materials (AMAT) stock dipped 1% before the bell on Monday. The move came after Morgan Stanley trimmed its price target on the chip-equipment maker to $563 from $642.
The cut might look bearish at first glance. But the details tell a more mixed story.
Morgan Stanley actually raised its 2027 revenue forecast for Applied Materials to $50.7 billion. Its EPS estimate for that year also climbed, to $20.92.
Both upgrades were driven by stronger NAND demand assumptions and improved gross-margin expectations. So the business outlook got better, even as the price target got smaller.
The reason for the lower target comes down to valuation, not fundamentals. Morgan Stanley reduced the multiple it applies to AMAT to 22 times earnings, down from 26 times.
That new multiple still sits about 10% above the stock’s average through-cycle multiple of 20 times since 2020. In other words, the stock is still getting some benefit of the doubt from Wall Street.
“The market is giving AMAT the benefit of the doubt, and we agree with that assessment,” Morgan Stanley analysts wrote. They kept an Equal-Weight rating on the stock.
Margins Are the Key Swing Factor
Morgan Stanley expects Applied Materials’ gross margin to rise from 48.8% in 2025 to 52% in 2027. Semiconductor equipment valuations tend to move closely with gross margins, so this is the number to watch.
The brokerage said it would be surprised if margins pushed materially above the mid-50% range. That’s a ceiling worth remembering the next time AMAT reports.
Applied Materials itself laid out an ambitious growth plan at its July earnings call. It said it plans to double quarterly system output from current levels by 2028.
Morgan Stanley ran the numbers on that target. Hitting roughly $14 billion in quarterly system shipments by mid-2028 could translate to about $68 billion in annual revenue and $31.70 in EPS.
Those are big numbers if the company can pull them off. For now, they remain a longer-term target rather than a near-term guarantee.
Where the Stock Stands Today
Separately, GuruFocus flagged that AMAT trades at $482, which it calculates as 92% above its GF Value estimate of $250.78. That points to a stock priced for a lot of good news already.
The stock’s trailing P/E ratio sits at 41.56x. That’s more than double its five-year median P/E of 20.36x.
GuruFocus gives Applied Materials a GF Score of 87 out of 100, reflecting strong profitability, growth, and financial strength. The one weak spot in that score is valuation, which ranks just 1 out of 10.
Ownership data adds another layer. Of the 25 gurus tracked by GuruFocus holding AMAT, 7 added to positions recently while 16 trimmed them.
Insiders have also been net sellers over the past 12 months, unloading $180.2 million worth of stock. There were no reported insider purchases during that period.
Applied Materials carries a market cap of $382.51 billion. It remains one of the largest suppliers of wafer fabrication equipment, serving foundry, logic, DRAM, and NAND chipmakers worldwide.
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