Applied Materials stock price has nosedived and moved into a technical bear market after falling by over 33% from the highest point this year. AMAT was trading at $170, its lowest level since February 5, meaning that it has largely erased most of the gains made earlier this year. So, is Applied Materials a good stock to buy today?
Applied Materials stock price analysis
The weekly chart shows that the AMAT share price peaked at $260 earlier this year, and then suffered a harsh reversal, as we predicted. It has moved below the 23.6% Fibonacci Retracement level at $201. Most recently, the stock is approaching the 38.2% retracement point at $168.
It has also moved below the 50-day and 25-day Exponential Moving Averages (EMA), which have made a bearish crossover pattern. Also, it formed a small head and shoulders-like chart pattern, a popular bearish reversal sign.
The MACD of the Applied Materials stock has moved below the zero line, while the Relative Strength Index (RSI) indicator has tilted downwards and moved below 50. The stock is approaching the crucial support at $162.95, its highest point in January 2022 and the upper side of the double-top pattern.
Therefore, there are signs that the AMAT stock wants to form a break and retest chart pattern. That is a situation where an asset goes back and retests a crucial support level and then resumes the uptrend. It is one of the most popular continuation signs.
Therefore, in this case, a strong bullish breakout cannot be ruled out in the near term. However, a drop below the support at $162 will invalidate the bullish view and point to more downside, potentially to the 50% Fibonacci Retracement point at $141.35.
AMAT stock chart | Source: TradingView
Why AMAT shares crashed
For starters, Applied Materials is a large technology company in the semiconductor industry that manufactures products used by some of the top companies. Its semiconductor systems solutions include things like epitaxy, Ion Implant, Rapid Thermal Processing, Chemical Mechanical Planarization, and Atomic Layer Deposition.
The company’s Applied Global Services division provides fab consulting, subfab equipment, automation software, and other technology-enabled services. It is also a big player in the display and adjacent markets industry.
Applied Materials stock continued its downtrend after the company published its recent financial results. Its revenues rose from $6.7 billion in Q4’23 to $7.045 billion in the last quarter. It also expanded its gross margins a bit.
However, Applied Materials’ net income dropped from $2 billion to $1.7 billion as its operating margin fell to 29.3%.
For the year, the company’s revenue rose by 2% to $27.2 billion, helped by its semiconductor division, which made $19.9 billion. Applied Global Services revenue rose by 9% to $6.2 billion.
Therefore, the AMAT stock price has dropped as investors anticipate further slowdown as the artificial intelligence industry starts to peak. Analysts expect that the revenue for this quarter will be $7.17 billion, a 6.90% increase from the same quarter last year. The annual revenue is expected to be $29.42 billion.
The stock has also dropped because the semiconductor industry is highly cyclical. The recent demand has fueled more production, which could see companies have more inventories in 2024. Also, there are signs that AI investments are slowing.
Fortunately, Applied Materials stock has become a bargain as it trades at a forward price-to-earnings ratio of 17.57 and a trailing multiple of 19. These are smaller numbers compared to the S&P 500 index has a multiple of over 20.
The other benefit is that Applied Materials has become a good dividend company. It has boosted its payouts in the last seven years and has a low payout ratio of 17.5%. Therefore, it will become viable to buy the Applied Materials stock dip at some point. Read more: Applied Materials (AMAT) stock: here comes the death cross
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