Metric sales

Stock of Applied Materials: A Data Metric to Watch (NASDAQ: AMAT)

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Applied materials (NASDAQ: AMAT) reported a strong quarter of earnings on its earnings call on Aug. 18, 2022 and mostly expects weaker demand from memory chip makers while providing an upbeat outlook.

Adjusted earnings were $1.94 per share on sales of $6.52 billion. Wall Street had forecast earnings of $1.78 per share on sales of $6.27 billion. The title had initially climbed when the results were published. AMAT stock had fallen 29% so far in 2022.

There are two interesting comments from AMAT management that I found amusing:

1. In the company’s press release, CEO Gary Dickerson wrote:

“We are confident in our ability to navigate macroeconomic headwinds and we remain very positive about the long-term strength of the semiconductor market and our outsized growth opportunities. »

Three days earlier, on August 15, 2022, I wrote a Seeking Alpha article titled “Applied Materials: Navigate 2 successive equipment failures.”

Chance? The second “coincidence” is that in my article referenced above, I noted:

“AMAT announces F3Q results after market close on August 18, 2022. Please be aware that since AMAT’s new leadership, the term pushout has not been used once in an earnings call. readers on this, as equipment pushouts are underway at other semiconductor equipment companies, and this oversupply of consumer electronics will hit AMAT harder than companies announced the previous month. “

True to form, Dickerson said on the earnings call:

“The changing macroeconomic environment is causing some clients to adjust the timing of their investments.”

Chief Financial Officer Brice Hill did not use the phrase pushout in the earnings call saying:

“We expect some of our customers to moderate their capacity additions in areas that have been impacted by weak consumer spending.”

Gary Dickerson, CEO of Applied Materials, Inc., on Third Quarter 2022 Earnings – Earnings Call Transcript

Even Jefferies Mark Lipacis pushed the two leaders to use the term “push,” but got the buzz when he asked:

“I think you used the phrase adjust order timing. You too to push there, can you, for example, take the slot you have allocated to them and to push whether they back off a quarter or two or do you – at some point just say, look, we can’t to push that back plus, you either have to take it or go to the end of the line.”

Ditto for UBS analyst Timothy Arcuri who asked:

“Around some of the mixed signals around what’s happening this time around, and on the one hand customers are to push but you also mentioned that you receive long-term commitments from other clients. I was wondering what that means, since it sounds like you’re confident that foundry/logic will hold up even if memory grow and that’s not usually how it works.”

Again, a conversation around. No indication of “push” despite Lipacis and Arcuri indicating competitors see them. This means one of three things:

  1. AMAT’s memory clients are smarter than competitors’ memory clients, but I noted in my Seeking Alpha article above that Micron (MU), Samsung Electronics (SSNLY), and SK Hynix (OTC: HXSCL), the top 3 companies, are or will be considering capex cuts, so it’s not working.
  2. AMAT simply cannot use the term “push” because of the negative connotation and management, which has lost market share to competitors since taking over, including the displacement of 331 million from 2018 to 2019 to increase their share, are desperate to maintain a successful image.
  3. AMAT is better than its competitors, but in many Seeking Alpha articles I have repeatedly pointed out that AMAT is losing share to competitors, as shown in Chart 1, according to The Information Network report entitled: Applied Materials: Competing Analysis of Served Markets.

Global applied equipment market share

The information network

Chart 1

Key financial indicator

Although shares of AMAT rose after hours following its earnings call, by the next day’s close the shares were down 3.36%.

Why. Because the 10-year Treasury rate has risen and there is a direct correlation between the performance of 10-year stocks and that of technology. I have discussed the 10 years in a series of several Seeking Alpha articles, such as my July 1, 2022 Seeking Alpha article titled “Why Are Tech Stocks Selling and What’s the Outlook?” where I noted that over this period, the S&P Technology Select Sector Index (IXT) fell about 30% through June 16, as shown in Chart 2.

10-year Treasury rate

Y-Charts

Chart 2

I noted in my post:

“This correlation was strong in 2022. Although Morningstar analysts found a minimal correlation between 10-year Treasuries and tech stocks over a 15-year period, since January 2022 the rise in the 10-year due inflation fears has had a significant impact on tech, so as I said above, if you’re looking to buy falling tech stocks, you want to wait for the 10 years to peak.”

The 10 year old has overcome on June 16, 2022, and we can see the IXT begin to rise in this inverse relationship on June 16. Incidentally, the US Fed raised its interest rates on June 16 by 0.75%.

Nonetheless, as Chart 1 above shows, the benchmark 10-year US Treasury yield hit a nearly one-month high near 3%.

AMAT stock market performance

Chart 3 shows the evolution of the AMAT share. Despite its strong performance, tech stocks are traded as a sector and not individually, due to the lack of intimate knowledge of the industry by analysts and investors.

This is evident in Chart 3, which compares the percentage change in stock price over a one-year period for Applied Materials and its peers in the semiconductor process industry ASML (ASML), Lam Research (LRCX ). Tokyo Electron (OTCPK: TOELY) and KLA (KLAC).

Applied Materials vs Competitor Price % Change

Y-Charts

Chart 3

Three of these companies, AMAT, LRCX and TOELY are strong competitors to each other, particularly in etching and deposition process equipment. Yet these stock prices over the last one-year period have a difference of only 2%.

ASML had a dismal Q1 2022 but recovered in Q2 2022. This is reflected in its stock performance in Q1 vs Q2 and it recovered only 11% less than AMAT. KLAC is the big winner among its peers, growing 16.69% over the past year.

Key takeaway for investors

Chart 4 shows that AMAT has fallen below its 200-day moving average over the past 4-month period, but except for a few days, it has been below since January 2022.

AMAT stock price, SMA 200 days

Y-Charts

Chart 4

Chart 5 shows that AMAT fares less well among ratings than KLAC and ASML.

AMAT Stock Quant Rating Vs. Peers

Looking for Alpha

Chart 5

Chart 6 shows the quantitative factor scores. All show high profitability and various peer differences on different factor grades. These factor ratings are understandable given the performance of the common stocks of these companies, as shown above in Chart 3.

AMAT Stock Quant Factor Grades Vs. Peers

Looking for Alpha

Chart 6

All of the companies in this analysis are competitors of each other, and yet the stock performance is comparable, with KLAC, my top performing stock pick. This common stock performance is unusual because these companies are competitors and what is good for one should be bad for the other. But this is not the case, indicating that investors/traders are trading these stocks as a sector rather than on the individual merits of the company.

But the primary metric to consider is the 10-year Treasury. Macroeconomic factors, especially inflation, show a strong correlation with stock price. Again today, following a positive earnings call from AMAT, the stock price closed at -3.36% and compares to -5.24% for LRCX, -2.86% for ASML and -2 .67% for KLAC.