Demand for chips that provide the processing power to train and support artificial intelligence (AI) models is increasing rapidly as governments and technology companies around the globe race to deploy AI applications. This is precisely why Nvidia has seen a significant increase in its revenue and earnings in recent quarters.
Nvidia’s AI graphics processing units (GPUs) are in high demand relative to supply, with customers reportedly facing wait times of 36 to 52 weeks for deliveries of its flagship H100 processors. In response, the chipmaker is looking to ramp up production capacity to meet the demand for AI chips and sustain its share price rally.
Despite Nvidia’s strong gains and high valuations, some investors may seek more affordable alternative investments to capitalize on the AI boom. Applied Materials ((NASDAQ: AMAT)) is a promising option, positioned to benefit from Nvidia’s efforts to increase AI chip production.
Applied Materials and AI-Driven Semiconductor Spending
Applied Materials manufactures semiconductor equipment used by chipmakers and foundries to fabricate chips and integrated circuits. Key customers like Samsung, Taiwan Semiconductor Manufacturing, and Intel contribute significantly to its revenue.
In its fiscal 2023, Samsung and Taiwan Semiconductor Manufacturing accounted for 34% of Applied Materials’ revenue, with Intel contributing less than 10%. With these companies planning to invest more in semiconductor equipment in 2024, Applied Materials’ latest results surpassed expectations.
Applied Materials reported strong first-quarter results for fiscal 2024, beating revenue and earnings estimates. The company’s guidance for the current quarter also suggests positive momentum driven by increased capital investment and growing demand for semiconductor equipment.
AI technologies are expanding Applied Materials’ addressable market, with opportunities in high-bandwidth memory (HBM) and advanced chip packaging. The company expects significant revenue growth from these segments, indicating a favorable outlook for future performance.
Growth Potential and Investment Consideration
Applied Materials is forecasting solid revenue and earnings growth in fiscal 2025, presenting a compelling investment opportunity. The company’s current valuation at 22 times trailing earnings offers a more affordable entry point compared to Nvidia, making it an attractive option for conservative investors looking to benefit from the AI-driven semiconductor boom.
Following strong quarterly performance, Applied Materials is well-positioned to sustain growth and potentially experience a bullish trend in the market.
Should you invest $1,000 in Applied Materials right now?
Before considering an investment in Applied Materials, it’s essential to weigh the potential risks and rewards associated with the stock. The Motley Fool Stock Advisor offers insights on top stock picks for investors, providing valuable guidance for building a successful portfolio and maximizing returns.
Analysts anticipate positive growth for Applied Materials in fiscal 2025, signaling further upside potential for investors looking to capitalize on the semiconductor industry’s expansion.
Note: Portions of this article were originally published by The Motley Fool.
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