Applied Materials (AMAT) Cost Of Sales Key Factor For Profitability

Market is expecting AMAT to show a rise in quarterly revenue with a 3.9% increase in revenue to $6.673 billion from $6.43 billion a year ago, a

Applied Material's guidance on 16 May 2024, for the period ended 31 July, was for revenue between $6.25 billion and $7.05 billion.

The consensus estimate for earnings per share for Applied Materials is $2.03 per share for this reported quarter. This is within the EPS’s guidance given on 16 May 2024 for the period ending 31 July 2024 of between $1.83 and $2.19.

In 2024, the integration of automation technologies continues to revolutionize every aspect of supply chain management. This led to unprecedented levels of efficiency and agility. The global integrated automated supply chain is expected to reach US$25.6 billion by 2033, from US$13.4 billion in 2023, according to industry data by Market.us.

Inventory tracking and management are being revolutionized through the usage of automation solutions, such as RFID tagging, barcode scanning, and computer vision. Real-time tracking technologies are offering granular visibility in inventory movements. This allows businesses to monitor stock levels, spot discrepancies, and manage understocking/overstocking. Manufacturers are now getting inclined towards smart factories.

Smart factories reflect and demonstrate Industry 4.0 principles. They tend to leverage 5G, IoT, AI, and other advanced technologies. Experts believe that smart factories allow predictive maintenance and decision-making.

I am expecting to see Applied Materials to have an increase from their revenue contributor in Applied Global Services. But there is something that I would think investors should take note is the cost of sales which will eat into their earnings profit.

Applied Materials cost of goods sold for the quarter ending 30 April 2024 was $3.493B, a 1.22% decline year-over-year. Applied Materials cost of goods sold for the twelve months ending 30 April 2024 was $13.999B, a 2.05% decline year-over-year.

This might signal that we are looking at a lower cost of sales in 2024, but with the increase in their development and also projects, we might see an increase in this reporting quarter.

I would be looking out to see if this number could further decline than 1.22%.

Applied Materials annual cost of goods sold for 2023 was $14.133B, a 2.47% increase from 2022.

Applied Materials annual cost of goods sold for 2022 was $13.792B, a 13.52% increase from 2021.

Applied Materials annual cost of goods sold for 2021 was $12.149B, a 27.75% increase from 2020.

Based on 22 Wall Street analysts offering 12 month price targets for Applied Materials in the last 3 months. The average price target is $247.00 with a high forecast of $300.00 and a low forecast of $185.00. The average price target represents a 22.50% change from the last price of $201.63.

Applied Materials stock price have been moving up prior to its earnings.

I believe we should be able to see higher YTD returns from AMAT with the increase in spending in automation by companies. AI hype have moved from IT software to other realms including the manufacturing, healthcare and also defence.

I would expect AMAT to report increase in their orders for the rest of 2024.

Though we are seeing semiconductor space improving in terms of their stock price, AMAT increase have not been able to catch up.

This might further drive AMAT to spend more on acquiring more customers. But technical is showing that there is potential upside from MACD and KDJ, hence, if you would like to look at a semiconductor which is into innovation and automation space.

AMAT could be something we can consider.

If I were to look at AMAT now, I would consider this stock because of the potential of their solutions in the AI automation space, especially in the factories deployment area.

This is an area that have not been covered much from the AI hype we are seeing. So I will be watching the price action on AMAT to se if we can take a position.

Appreciate if you could share your thoughts in the comment section whether you think AMAT would surprise in its earnings report with a greater decline in cost of sales?

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.