Applied Materials, Inc. (NASDAQ:AMAT) experienced a dramatic rally on Thursday, with shares climbing 10.7% to $652.07 as of 1:52 p.m. EDT. The surge added approximately $50.4 billion to the company's market capitalization, making it one of the standout performers in the semiconductor equipment sector.
The Philadelphia semiconductor index rose 2.5%, driven by strength in memory-related stocks, even as the Nasdaq Composite slipped 0.31% amid weakness in megacap technology names. The divergence highlights a rotation toward memory and semiconductor capital equipment plays.
Key Drivers: DRAM and Advanced Packaging
Applied Materials' rally was fueled by its June 25 DRAM and Advanced Packaging Master Class, where the company unveiled new systems for DRAM and advanced packaging. Among the highlights was an updated Centura Prime Epi tool that is 20% smaller, along with new process-control tools targeting high-bandwidth memory (HBM) and chiplet packaging.
Dr. Prabu Raja, President of Applied Materials' Semiconductor Products Group, noted that DRAM is increasingly adopting materials steps typical of logic chips, stating that "the distinction between logic and memory process technology is converging." Keith Wells, who leads the Imaging and Process Control Group, added that advanced packaging now requires eBeam-grade precision, as optical tools reach their limits.
Strong Memory Spending Outlook
The company's prepared remarks provided a bullish outlook for memory spending. Applied Materials forecast that DRAM wafer-fab equipment spending will more than double that of NAND. Additionally, HBM is expected to boost the company's advanced packaging business by more than 50% this year. The company's share of DRAM process equipment has risen approximately 10 percentage points since 2013.
Valuation and Analyst Targets
Despite the sharp move, Applied Materials shares are now trading 18.7% above the average analyst target of $549.34, based on 39 ratings. The highest target stands at $720 from Bank of America, which raised its price target from $540 on June 23, maintaining a Buy rating. BofA also increased its 2030 semiconductor addressable-market forecast to $2.7 trillion from $2.3 trillion, citing memory and data center growth.
At current levels, the stock trades at 39.5 times next fiscal year's EPS estimate of $16.50. Further upside would require either upward estimate revisions or a higher market multiple.
Broader Market Context
The rally in Applied Materials was part of a broader move in memory-related names. Micron Technology (NASDAQ:MU) jumped to $1,233.54 after its earnings forecast beat analyst views, while Qualcomm (NASDAQ:QCOM) climbed 7.4% to $211.99 on optimism about its data-center business reaching $15 billion in revenue by 2029.
Applied Materials' last earnings report in May showed record Q2 revenue of $7.91 billion and non-GAAP EPS of $2.86. For Q3, the company guided revenue to $8.95 billion (plus or minus $500 million) and non-GAAP EPS of $3.36 (plus or minus 20 cents). CEO Gary Dickerson projected that the semiconductor equipment segment would "grow more than 30 percent in calendar 2026."
Risks and Caution
Despite the upbeat outlook, some market participants remain cautious. "Trees don't grow to the sky," said Robert Conzo, CEO of Wealth Alliance, after the extended rally in high-growth names. Michele Morganti, a senior equity strategist at Generali Investments, warned that "there is still a risk" the Federal Reserve could hike rates this year, which could pressure growth stocks.
