Applied Materials Inc (AMAT)

Conclusion

Applied Materials designs and sells semiconductor manufacturing equipment, materials engineering systems and related services to chipmakers, through its Semiconductor Systems and Applied Global Services segments. On 2026-11-09 the share price is 370.55 USD and the market capitalisation is 294.1 billion USD.

The verdict is overvalued. The fair value band runs from 128.78 to 193.17 USD, with a midpoint of 160.97 USD, and the margin of safety is -56.6% at the current price, so the price sits above the whole band. Against their own ten-year medians, the price-to-earnings ratio is 31.7 against 20.4 and enterprise value to EBITDA is 25.3 against 15.4. The DCF gives 95.79 USD per share at a discount rate of 13.24%, and the fair value from historical multiples is 226.16 USD. The reverse DCF implies growth of 29.3% a year, while revenue has compounded at 10.5% and free cash flow per share at 14.0% over five years.

What holds the case up: a return on invested capital of 35.0% against a WACC of 13.0%, an operating margin of 30.5%, and net cash with net debt to EBITDA of -0.16. What would break it: a price-to-free-cash-flow ratio of 52.3 against a median of 19.4, a trailing free cash flow conversion of 60.6% against 90.2% over five years, and revenue growth of only 3.2% over three years.

Financial health

Financial health is green: all four checks are assessed good. The current ratio is 2.42 and the quick ratio 1.63, the company holds net cash with net debt to EBITDA of -0.16, debt to equity is 0.29, and interest coverage is 39.7x on a trailing basis. The Altman Z-score is 13.78, in the safe zone. The Altman model was designed for manufacturers, and this company is one, so it applies. Insolvency risk: low, about 0.05% by the estimate of the Ohlson model over one to two years, based on figures as of October 2025.

Earnings quality

Earnings quality is green, with three signals good and one neutral. Free cash flow conversion is 60.6% on a trailing basis and 90.2% over five years, and free cash flow after stock-based compensation is 5.07 billion USD. Stock-based compensation is 1.8% of revenue and the accrual ratio is -0.0272, so reported earnings are well covered by cash. The share count has fallen at a compound 2.6% a year over five years, consistent with buybacks. The Piotroski score is 6 of 9, which is neutral. The Beneish M-score of -2.64 reads as unlikely to signal manipulation. The company beat earnings estimates in all eight of the last quarters, with an average surprise of 4.9%. Next-year estimates rose 9.2% over 90 days, with 4 upward and 2 downward revisions in the last 30 days.

Profitability

Profitability is green, with all four signals good. The gross margin is 49.4% against a median of 45.8%, the operating margin 30.5% against 27.9%, and the net margin 30.1% against 24.3%. Margin stability is 11.8%. Return on invested capital is 35.0% against a WACC of 13.0%, and the given spread of 22.0 percentage points is why the company is assessed as creating value. The five-year median ROIC is 38.7%. Return on equity is 36.2%. The DuPont split, as of October 2025, shows a net margin of 24.7%, asset turnover of 0.78 and an equity multiplier of 1.78. The return therefore rests mainly on margins and capital efficiency, not on leverage.

Growth

Growth is green, with all four signals good. Revenue compounded at 3.2% over three years, 10.5% over five and 11.4% over ten, and grew in 9 of the last 10 years. Earnings per share compounded at 5.2%, 17.2% and 22.7% over the same spans, and free cash flow per share at 10.3%, 14.0% and 24.7%. The three-year rates are well below the longer ones, so recent growth has slowed. The next-year earnings growth estimate is 45.0%, far above any of these historical rates, and that expectation is central to the valuation question.

Valuation

Valuation is red: the single check is assessed bad, and the verdict is overvalued. The price-to-earnings ratio is 31.7 against a ten-year median of 20.4, a premium of 55.3%. Enterprise value to EBITDA is 25.3 against 15.4, a premium of 64.5%. Price to free cash flow is 52.3 against 19.4, a premium of 169.8%. Price to sales is 9.5 against 4.3, a premium of 121.4%, and price to book is 11.5 against 7.5, a premium of 53.4%. The DCF gives 95.79 USD per share, using a discount rate of 13.24% and long-term growth of 2.5%, with about 42.1% of its value in the terminal value. The fair value band is 128.78 to 193.17 USD, with a midpoint of 160.97 USD and a margin of safety of -56.6%. The reverse DCF implies 29.3% annual growth, against 10.5% revenue growth and 14.0% free cash flow per share growth over five years. The fair value is an order of magnitude built on fixed assumptions, including a 5% equity risk premium, not a price target. The dividend yield is 0.52% and the payout is 27.0% of free cash flow.

Risks

The weakest number is the trailing free cash flow conversion of 60.6%, down from 90.2% over five years. If it persists, less cash stands behind reported profit. The price-to-free-cash-flow ratio of 52.3 needs a long period of cash growth to justify it, and the fair value band sits far below the price. Three-year revenue growth of 3.2% would make the implied 29.3% growth hard to reach. A Piotroski score of 6 of 9 leaves less room for error. The company's debt maturity schedule and revenue by segment are not available, so refinancing risk and segment mix cannot be checked here. This analysis relies only on the figures above, uses fixed assumptions, and does not cover events after the dates on which those figures were recorded.