Don't be afraid the stock price will double within the year! Goldman Sachs Applied Materials (AMAT.US) DRAM+HBM opens room for long-term growth

The Zhitong Finance App learned that Goldman Sachs recently released a research report to maintain the Applied Materials (AMAT.US) “buy” rating and raise the 12-month target price from $520 to $645, 7% higher than the latest closing price.

The valuation given by Goldman Sachs corresponds to about 32 times the normalized earnings per share, which is around $20 per share. This shows that the bank values long-term stable profitability of enterprises rather than outstanding phased performance in a single quarter.

The core logic lies in dynamic random access memory (DRAM). DRAM is widely used in servers, and high bandwidth memory (HBM), as a high-end form of DRAM, is a supporting core component for various high-performance AI acceleration chips. Applied Materials sells equipment needed to manufacture DRAM.

Goldman Sachs expects the company's performance growth rate to outperform its peers in 2026. At present, the company's order visibility has been extended to 2028. Combined with product price increase dividends, the room for performance growth is expected to expand further.

How does the DRAM boom affect the profitability of applied materials?

Applied Materials is not a chip design manufacturer; its main equipment is used for chip internal film deposition, etching and packaging processes.

This means that Applied Materials' profits depend on the pace at which the fab expands production rather than the individual sales volume of a particular chip.

This business difference is critical for investors: investing in applied materials is essentially betting on the capital-expenditure cycle of the entire industry rather than the development prospects of a single customer.

According to the data, Applied Materials' second-fiscal quarter revenue increased 11% year-on-year to US$7.91 billion, a record high; earnings per share were US$2.86, higher than market expectations of US$2.68.

Goldman Sachs currently predicts the company's 2026 non-GAAP earnings per share of $14.15, which is about 6% higher than the general market estimate.

Applied Materials' profit growth is mainly based on the following factors: DRAM and HBM production capacity expansion, including new fab construction; 2nm and below advanced logic chip process requirements; and advanced packaging business. The company's management expects the sector's revenue growth rate to exceed 50% in 2026.

Applied Materials' stock price doubled during the year, and the first two major risks of chasing the rise cannot be ignored

Since this year, Applied Materials shares have risen 135%, and the S&P 500 index has risen nearly 11% over the same period.

On July 9, it was reported that Gary Dickerson, CEO of Applied Materials, said in an interview that chipmakers are sharing equipment demand forecasts for the next two years or more with the company to ensure the smooth progress of production capacity expansion. This suggests that the current investment boom driven by artificial intelligence is likely to last longer than expected. Applied Materials shares rose in response.

Dickerson also mentioned that some plans could be extended until 2030. The long-term forecast provided by the customer enables the supplier to increase production capacity before the order officially arrives.

These remarks have boosted analysts' optimism. TD Cowen raised the target price of applied materials from $525 to $700 on the same day, while Mizuho Securities raised the target price to $650.

Goldman Sachs is confident in the fundamentals of applied materials, but is cautious about the timing of entry, and the bank clearly expressed this in its second-quarter semiconductor industry outlook.

Analysts expect the performance of most chip sub-industries to exceed expectations in the second quarter, but the Philadelphia Semiconductor Index has risen by about 88% during the quarter, while the S&P 500 index has only risen by about 14% over the same period.

When a sector's increase surpasses the general market index by a large margin, simply handing over good performance is no longer enough to support the stock price; the performance assessment threshold will rise as the stock price rises.

According to reports, Applied Materials will release the third fiscal quarter results on August 13. The market expects earnings per share of 3.39 US dollars and revenue of 8.94 billion US dollars.

Goldman Sachs pointed out two clear risks, and Applied Materials shares have yet to fully absorb these negative factors.

The first risk comes from the regulatory level. Most of the equipment for applied materials is sold to mainland China, Taiwan and South Korea. If a new export control policy for advanced process equipment is introduced, the company's business will be impacted.

The second biggest risk is industry competition. Chinese semiconductor equipment manufacturers continue to seize market share, squeezing the target market space for applied materials.

According to the data, 29 analysts covering applied materials gave an average price target of $617.21, which is slightly higher than the current price of $602.50.

For long-term investors, DRAM and advanced packaging circuits have a long-term structural growth logic rather than a short-term cyclical market, which is also in line with the changing trend in the memory chip demand pattern.

For new investors, the August 13 earnings report is worth watching. This report will verify whether management's multi-year growth expectations are being converted into actual orders.