Investment Thesis
Applied Materials demonstrates strong fundamental health with excellent profitability metrics (28.9% net margin, 49% gross margin) and robust cash generation ($1.0B free cash flow). The company maintains a solid balance sheet with conservative leverage (0.30x debt/equity) and strong liquidity (2.71x current ratio), positioning it well to weather cyclical semiconductor demand despite modest revenue growth of 4.4% YoY.
Strengths
- Exceptional net profit margin of 28.9% demonstrates pricing power and operational efficiency
- Strong free cash flow generation of $1.0B with 14.8% FCF margin provides capital flexibility
- Conservative balance sheet with debt-to-equity of 0.30x and interest coverage of 15.5x
- Healthy liquidity position with current ratio of 2.71x and $7.2B cash reserves
- Solid operating margin of 26.1% reflects cost discipline in core business
Risks
- Modest revenue growth of 4.4% YoY suggests potential maturity or cyclical headwinds in end markets
- Declining net income (-2.5% YoY) despite revenue growth indicates margin compression or one-time charges
- Low ROE of 9.3% and ROA of 5.4% suggest capital is not generating strong returns relative to investment
- High insider trading activity (23 Form 4 filings in 90 days) warrants monitoring for sentiment signals
- Semiconductor sector cyclicality creates earnings volatility risk
Key Metrics to Watch
- Revenue growth acceleration vs. semiconductor capital equipment cycle trends
- Net income recovery and operating margin sustainability
- Free cash flow generation and capital allocation decisions
- Return on equity improvement and capital efficiency
- Gross margin trends indicating pricing power or input cost pressures
Financial Metrics
Revenue
7.0B
Net Income
2.0B
EPS (Diluted)
$2.54
Free Cash Flow
1.0B
Total Assets
37.6B
Cash
7.2B
Profitability Ratios
Gross Margin
49.0%
Operating Margin
26.1%
Net Margin
28.9%
ROE
9.3%
ROA
5.4%
FCF Margin
14.8%
Balance Sheet & Liquidity
Current Ratio
2.71x
Quick Ratio
1.94x
Debt/Equity
0.30x
Debt/Assets
42.3%
Interest Coverage
15.52x
Long-term Debt
6.5B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-03-19T20:01:48.633464 |
Data as of: 2026-01-25 |
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