Is Applied Materials’ Surge Justified After US Chip Investment News in 2025?
If you are weighing your next move on Applied Materials, you are not alone. The stock has been on quite a ride lately, climbing an impressive 17.3% in just the past week and soaring 23.4% over the last month. Long-term investors have seen substantial rewards too, with the stock up 148.5% in three years and an eye-opening 253.1% over five years. Even year-to-date, shares are up 22.4%, handily outpacing broader market averages. Much of this momentum reflects renewed optimism about the semiconductor sector as supply chain concerns ease and new government support programs spur investment in chip manufacturing here in the U.S.
Of course, such rapid gains always bring up the big question: is Applied Materials now trading at a fair price, or is there still room for upside? According to our value score, which rates the company on six undervaluation checks, Applied Materials scores a 3. That means it looks undervalued on half of our proven metrics, a figure that stands out in a market where many peers have already seen their prices overshoot fundamentals.
Before you make your next move, it helps to break down how analysts typically measure value and discover why there might be an even more insightful way to look at Applied Materials’ true worth. Let’s dive into the key valuation approaches and see how this stock stacks up.
A Discounted Cash Flow (DCF) model estimates a company’s true value by projecting its future cash flows and then discounting them back to their value in today’s dollars. This approach aims to reflect what Applied Materials is really worth, based on its ability to generate free cash in the years ahead.
Applied Materials reported free cash flow (FCF) of $6.3 Billion over the last twelve months. Analyst forecasts predict continued growth, with cash flows expected to reach $9.6 Billion by 2029. While analysts only provide concrete estimates up to five years out, Simply Wall St extends the outlook for a decade using a two-stage approach to estimate future performance. This approach helps capture both nearer-term trends and longer-term business prospects.
Based on these projections, the DCF analysis calculates an intrinsic fair value of $162.97 per share. However, the stock currently trades at a 23.0% premium to this calculated value, which implies that, according to this model, it is overvalued at its current price.
The Price-to-Earnings (PE) ratio is the most commonly used valuation metric for profitable companies like Applied Materials because it measures how much investors are willing to pay for each dollar of current earnings. It is a quick way to compare relative value, especially when companies are consistently delivering steady profits.
However, what counts as a “normal” PE ratio actually depends on a couple of key things: how much the company’s earnings are expected to grow, and how risky those earnings are. Faster-growing companies, or those with more predictable profits, usually command higher PE multiples since investors are more optimistic about their future potential.
Currently, Applied Materials trades at a PE of 23.38x. That is noticeably below the Semiconductor industry average of 34.94x, and also under the average for its direct peers at 34.58x. At first glance, this makes the stock look attractively priced compared to its sector.
Instead of just relying on basic industry or peer averages, we also consider Simply Wall St’s proprietary “Fair Ratio,” which is a benchmark PE multiple tailored specifically to each company. It adjusts for factors like Applied Materials’ earnings growth outlook, profit margins, market cap, and even the specific risks and opportunities the company faces. This makes it a more precise way to gauge valuation than just using sector-level statistics.
Applied Materials’ Fair Ratio stands at 29.24x. With its actual PE at 23.38x, the stock is trading at a notable discount even after accounting for its growth and business quality. Based on this deeper look, the stock appears undervalued at current prices.
Earlier we mentioned there is an even better way to understand valuation, so let’s introduce you to Narratives. Narratives are more than just numbers; they are personal stories or perspectives about a company’s future, combining your assumptions on fair value, revenue growth, earnings, and profit margins, then using these to estimate what the business is truly worth.
Each Narrative starts with your own view about what might drive or challenge Applied Materials in the years ahead, links it to specific financial forecasts, and then transforms this personal outlook into a fair value estimate. This means you can clearly see whether you think the stock is really cheap, expensive, or fairly priced right now.
Simply Wall St’s platform makes exploring and creating Narratives easy within the Community page, where millions of investors share their perspectives, and the fair value estimate attached to each Narrative updates automatically as new news or earnings results come out.
Narratives empower smarter decision-making: you compare your Fair Value to the live share price, and decide when to buy, hold, or sell Applied Materials. For example, some investors expect explosive AI-driven demand and see a fair value above $240 per share, while others are more cautious about China and industry cycles, estimating it closer to $160, so you control the story behind your investment decisions.
NasdaqGS:AMAT Community Fair Values as at Sep 2025
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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