Consider this investment advice: Should you opt for a different stock instead of Nvidia to potentially double your profits?
In a significant development for the technology sector, Applied Materials (NASDAQ: AMAT) is well-positioned to capitalise on the generative artificial intelligence (AI) boom and the surge in capital expenditures on semiconductor manufacturing equipment. This, in turn, could potentially drive the stock price to reach $380 within the next few years, possibly by around 2028.
Applied Materials, a leading provider of advanced equipment and software for semiconductor chip production, has been a central player in both the logic and memory sectors of the chip market. Major industry giants such as TSMC, Samsung, and Intel are among its clientele, positioning the company favourably to capture a substantial portion of the anticipated investment in advanced chip-making equipment.
Capital expenditures on such equipment are expected to nearly double between 2023 and 2028, with global capex estimated to exceed $100 billion in 2025 alone. This surge in demand is driven by the need for advanced manufacturing processes, greater memory capacity, and more intricate chips, all of which are required to meet the demands of AI.
If Applied Materials manages to grow its sales at an average annual rate of nearly 22% over the next three years, driven by increased demand for AI-related chip production tools, its revenues could rise from about $29 billion in FY 2025 to approximately $53 billion by FY 2028—an 81% increase. This growth expectation, coupled with historical stock performance, supports the potential surge to the $380 level in the near future.
However, nearer-term forecasts suggest more modest price targets. Applied Materials' stock is anticipated to reach around $193.77 by August 2025 and an average analyst 12-month price target of approximately $202.65, indicating steady growth but not yet near $380 in the immediate term.
Applied Materials has been benefiting from improved economies of scale and a more premium product mix, as evidenced by its adjusted net margins growing from 19.6% in FY'19 to 26.5% in FY'24. The combination of approximately 81% revenue growth and a 20% increase in margins suggests an estimated 2.2x growth in earnings over the subsequent three years.
Moreover, Applied Materials is experiencing faster growth in its services sales compared to products, which could further enhance margins due to recurring revenues and a focus on more lucrative software. The company's margins could continue to rise to approximately 31% by FY'28 as it focuses on new technologies such as Gate-All-Around (GAA) semiconductor equipment.
The potential for Applied Materials to reach $380 is further bolstered by its expertise in areas such as high-bandwidth memory and sophisticated chip packaging. These are crucial for AI, which demands high-bandwidth memory and complex chip packaging solutions.
In conclusion, while short-term outlooks remain moderate, the generative AI-driven semiconductor boom and related capital expenditure surge provide strong fundamental reasons to anticipate Applied Materials stock could reach $380 within roughly the next 3 to 5 years, aligning with the expected ramp-up through 2028.
Investing in Nvidia stock might also be relevant, as Applied Materials is a significant supplier for Nvidia's advanced semiconductor manufacturing equipment, making Applied Materials' valuation potentially impacted by Nvidia's success in the technology sector, particularly in finance and investing, given the growth in the AI market.
If Applied Materials continues to grow at an average annual rate of nearly 22% over the next three years, driven by increased demand for AI-related chip production tools, its amat revenue could rise from about $29 billion in FY 2025 to approximately $53 billion by FY 2028—an 81% increase, which could potentially lead to a valuation surge.
