I’ve been keeping an eye on semiconductor enabler Applied Materials (AMAT) for a while, and it’s been pretty interesting watching it climb back toward last year’s highs. It’s now hovering in the high $220s, and there’s reason to suggest the market is brewing to finally push through the psychologically important $250 threshold.
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I think this year’s rally makes sense because the company is operating in a semiconductor environment that’s probably the strongest we’ve seen in years. But then again, I feel that investors need to keep their feet on the ground. Yes, the chart looks great, but AMAT’s valuation is starting to look a little rich, and we can’t ignore the cyclical nature of this industry. If we hit resistance here, it could be a hard ceiling to crack.
Why AI Enthusiasm is So Elevated
You can’t talk about AMAT right now without talking about the absolute explosion in the semiconductor space. It’s been a fantastic year for the stock, up nearly 40% this year, for the pretty simple reason that the Artificial Intelligence (AI) boom isn’t slowing down. Every time you hear about a new data center or a more innovative AI model, companies like Applied Materials are signing growing backlogs.
They are the ones providing the “picks and shovels” for this gold rush. In the latest earnings call, CEO Gary Dickerson hammered home their role in the “AI inflection,” noting that the industry’s roadmap is becoming increasingly dependent on materials engineering. This is especially true for High Bandwidth Memory (HBM) and advanced packaging, where Applied Materials has been leading the space.
Apparently, investors are eating this narrative up because AMAT is deeply embedded in the supply chain for the logic and memory chips that power AI. That story has driven bullish sentiment, making the stock feel like a must-own in the tech sector, in my humble opinion.
Growth Metrics Tell a Different Story
But here’s what really worries me. If you peel back the layers of hype, the actual growth numbers are underwhelming. You would expect a company at the heart of an AI boom to be putting up double-digit explosions in revenue, but AMAT has been stuck in the mud. For the full fiscal year 2025, revenue grew just 4%, hardly the “hyper-growth” territory you see with some of its memory peers like Intel (INTC), KLA (KLAC), and Lam Research (LRCX).
It gets worse if you look at the most recent quarter. Growth was actually negative, with Applied reporting revenue of $6.80 billion, which was down 3% year-over-year in its fiscal Q4 2025. So, what gives? A considerable part of this is the “digestion” phase in China. After fervently buying up equipment in 2023 and 2024, Chinese customers have pulled back significantly. In fact, Applied’s revenue share from China dropped from a massive 45% a year ago to just around 25% recently.
While the AI segment is growing, it hasn’t been enough to fully offset the decline in legacy spending. This disconnect of a stock price chasing all-time highs while sales are actually shrinking is a red flag in my view, and so the current rally might be running on fumes.
The Price You Pay: Valuation Risks Loom Large
This brings us to the biggest issue: valuation. After the recent run, AMAT trades at about 26x forward earnings. For a hyper-growth semiconductor company like NVIDIA (NVDA) or Advanced Micro Devices (AMD), that might have been a cheap multiple. But, for a cyclical hardware company that just posted negative quarterly revenue growth? That’s probably too steep for the conventional investor.
Historically, semiconductor equipment makers, including AMAT, have traded at lower multiples precisely because their business is prone to boom-and-bust cycles. For context, AMAT’s average P/E over the past decade has hovered close to 12x. Paying 26x earnings implies you anticipate massive acceleration, which we just aren’t seeing in the numbers yet.
Therefore, if the broader market catches a cold or investors rotate out of high-multiple tech stocks, AMAT is well positioned for “multiple compression.” With the stock priced for perfection but delivering negative top-line growth, the downside risk here is real.
Is AMAT a Good Stock to Buy Now?
AMAT currently has a Moderate Buy consensus rating on Wall Street, based on 22 analysts’ views. The stock has received 16 Buy and 7 Hold ratings, with no analysts rating it a Sell. Interestingly, AMAT’s average price target of $247.74 implies ~10% upside potential over the next 12 months.
AMAT’s Chart Says Go, but the Fundamentals Urge Caution
Applied Materials is definitely in a tricky spot right now. I agree that the AI narrative is unquestionably powerful, and it makes sense that it has pushed the stock incredibly close to record highs. But the underlying fundamentals tell a more cautious story.
With the stock trading at a rich 24x earnings despite that negative quarterly growth, it feels priced for perfection. If the sector wobbles, that multiple could shrink fast. Thus, I would argue that you should tread carefully here, as breaking that $250 ceiling might be much harder than the AI mania and charts alike suggest.