Applied Materials (NASDAQ:AMAT) stock has dropped to a local bear market, moving from the year-to-date high of $740 to the current $539.15. This retreat coincided with the decline of other artificial intelligence (AI) stocks as investors booked profits. Traders and investors are now focusing on the upcoming quarterly results on August 13.
Applied Materials Stock Has Dropped Ahead of Earnings
AMAT stock has retreated sharply in the past few weeks, and this performance will be put to the test as it releases its financial results.
The most recent results showed that its revenue jumped by 11% in the second fiscal quarter to $7.9 billion. Its gross margin rose to 50%, while its operating income soared by 20% to $2.5 billion. These numbers were driven by demand for its products, which continued to rise during the quarter.
Most of its revenue came from its semiconductor systems, which made $5.9 billion, and its applied global services, hitting $1.66 billion. However, its free cash flow dropped substantially to $210 million from $1.06 billion in the same period last year.
It is possible that Applied Materials’ business continued to accelerate in the third fiscal quarter. Benzinga data shows that the estimate is that its revenue jumped by 23% to $9 billion, while its EPS soared from $2.48 to $3.39. AMAT has a long track record of beating estimates and hiking its outlook.
This growth will help to justify its premium valuation, with its forward P/E ratio rising to 43.8, higher than the five-year average of 21.18. Similarly, the price-to-earnings-growth ratio has jumped to 1.58, also higher than the expected 1.28.
Despite this, analysts tracking the company have a bullish outlook because of its strong position across various industries, including data centers. Goldman Sachs, HSBC, Citigroup, UBS, and Stifel either maintained or boosted their targets.
AMAT Stock Technical Analysis
Applied Materials stock bottomed at $434 in July and then bounced back to the current $539. It has moved above the Major S/R pivot point of the Murrey Math Lines. Most notably, the stock has remained above the 200-day Exponential Moving Average (EMA). These technicals suggest that bulls remain in control for now.
Therefore, the stock may continue rising, potentially to the strong pivot reverse level of the Murrey Math Lines tool at $625. Such a move would imply a 18% upside from the current level. The alternative scenario is where it drops to the support of $434.
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