Applied Materials (AMAT), Lam Research, and KLA-Tencor stocks have been on a downtrend. The companies reported weakness in memory WFE (wafer fab equipment) spending and acknowledged their exposure to the US-China trade war. Currently, the stocks are trading near or below their bearish target price. However, the companies are optimistic that the memory demand will likely rebound by the end of 2018.
Cowen analyst Krish Sankar upgraded Applied Materials from $60 to $62. Sankar stated that investors have already priced in the memory weakness and lower revenue estimates from Display. He said that the stock would likely pick up when memory WFE spending rebounds in the fourth quarter of 2018 and 2019. The stock could increase from spending in the foundry and logic markets.
Sankar thinks that Applied Materials’ revised forecast of a decline of 16% and 20% in display revenue in fiscal 2019 and 2020 looks more reasonable.
However, Morgan Stanley analyst Joseph Moore thinks otherwise. He doesn’t think that memory WFE spending will rebound by the fourth quarter. Samsung (SSNLF) hasn’t finalized its 2018 capital spending, while Western Digital (WDC) has reduced its capital spending.
According to Investor’s Business Daily, after being optimistic on the semiconductor equipment industry for over two years, Moore has become cautious. He thinks that the industry’s risk-reward ratio is the weakest in three years. He stated that these stocks would move within a range for the next six to 12 months with no outperforms or underperforms.
Moore stated that the industry’s earnings are healthy but companies might not report better-than-expected earnings. Growing capital spending from China (FXI) would mitigate the stocks’ downside risk.
Next, we’ll discuss Applied Materials’ technicals.