Applied Materials (AMAT) Net Margin Decline Tests Bullish Long‑Term Growth Narrative After FY 2025 Results

Applied Materials (AMAT) just closed out FY 2025 with Q4 revenue of about $6.8 billion and basic EPS of $2.39, capping a year in which trailing 12 month revenue was $28.4 billion and EPS reached $8.70. Over the last few quarters, the company has seen revenue move from $7.0 billion in Q4 2024 to a range between $6.8 billion and $7.3 billion in FY 2025, while quarterly EPS tracked between $1.46 and $2.64. This sets up a story where investors will be weighing solid top line scale against how efficiently those sales are being converted into profit.

See our full analysis for Applied Materials.

With the headline numbers on the table, the next step is to see how this earnings print lines up with the dominant bull and bear narratives around Applied Materials and where the latest margin picture might be quietly reshaping those views.

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Net Margin Slips To 24.7 Percent

• Trailing 12 month net income of about $7.0 billion on $28.4 billion of revenue translates to a 24.7 percent net margin, down from 26.4 percent a year ago.
• Consensus narrative highlights Applied’s leadership in advanced packaging and services as long term margin supports. However, the recent step down in trailing margin shows that, even with recurring revenues and over two thirds of service income coming from services and spares, profitability can still move lower when factors like regional slowdowns or digestion in areas such as China and mature nodes weigh on the mix.
  • While analysts expect profit margins to reach 28.3 percent in around three years, the current 24.7 percent level shows that the path there is not a straight line.
  • Investors tracking AI driven wafer fab buildouts and packaging growth will want to see if future results reverse this one year margin decline or if it persists.

EPS Growth Tracks Around 8 To 9 Percent

• Over the past five years, earnings have grown about 8.6 percent per year and are forecast to grow around 8.7 percent per year, with trailing 12 month EPS at $8.70 supporting that steady compound growth profile.
• From a bullish perspective, this combination of mid single digit revenue growth, currently around 6.1 percent per year, and upper single digit earnings growth fits the view that Applied’s leadership in materials engineering, AI related device inflections and expanding recurring services can keep EPS rising as new technologies ramp.
  • Analysts expect earnings to reach about $9.2 billion, or $11.94 per share, by roughly 2028, which would extend the current 8.6 percent historical growth trend if achieved.
  • Forecast improvements in profit margin from about 23.9 percent to 28.3 percent over the next three years are a key piece of that bullish case because they imply earnings can outpace revenue even if top line growth stays near the mid single digit range.

Over several years of AI driven capex and packaging expansion, bulls argue this 8 to 9 percent earnings growth runway could reward patient shareholders if margins track toward targets. 🐂 Applied Materials Bull Case

Valuation Sits Between Peers And DCF

• At a current share price of $259.21, Applied trades on a P E of 29.4 times, below both the semiconductor industry at 37 times and broader peers at 42 times, yet notably above a DCF fair value estimate of about $157.55.
• Bearish arguments focus on this gap between the $259.21 market price and DCF fair value, suggesting investors are paying a premium even as net margin has eased from 26.4 percent to 24.7 percent, and future revenue growth of roughly 4.3 to 6.1 percent annually is expected to trail the broader US market.
  • Critics highlight that for the analyst case to work, revenue would need to reach about $32.5 billion and earnings $9.2 billion by 2028 at a 20.4 times P E, while today’s multiple already sits at 29.4 times on current earnings.
  • Relative value versus peers on P E helps the bulls, but the valuation premium to the $157.55 DCF fair value and the step down in trailing margin give bears concrete numbers to point to when questioning the upside from here.

Skeptics warn that paying 29 times earnings while growth runs in the mid single digits could limit returns if margins or AI driven capex fall short of expectations. 🐻 Applied Materials Bear Case

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Applied Materials on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

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A great starting point for your Applied Materials research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.

See What Else Is Out There

Applied Materials faces mid single digit revenue growth, a recent slip in net margins and a valuation premium to DCF that may constrain future returns.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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