• Applied Materials stock up 65% ahead of Q4 results.
  • Q3 Revenue and earnings are expected to top estimates.
  • Focus on the impact of strong semiconductor demand in Q4.

Applied Materials, Inc. (NASDAQ: AMAT) will post fiscal fourth-quarter results after the market closes on November 18, 2021. The company heads into the Q4 results, having delivered upbeat earnings in Q3.

The stock has been on an impressive run amid strengthened investor confidence that the company is poised for a record-breaking year driven by strong demand for semiconductors. The stock is up by 65% year to date, outperforming the S&P 500, which is up by about 25%.

Chart showing AMAT stock rally

Applied Materials has topped consensus estimates on revenue and earnings in the last four quarters. Consequently, the expectation is high that the company will deliver better than expected results for Q4 driven by strong demand for its products in the quarter.

Q3 earnings expectations

Wall Street expects the company to deliver fiscal fourth-quarter revenue of $6.35 billion, slightly above the company’s guidance of $6.33 billion. In contrast, the company delivered $4.69 billion last year same quarter and $6.20 billion in the third quarter.

Operating income is expected to rise to $2.08 billion compared to $1.33 billion delivered the same quarter last year. It would also mark a slight increase from operating income of $2.03 billion delivered in the third quarter.

Chart showing Applied Material price jump on earnings beat

Additionally, Wall Street expects an adjusted EPS of $1.95, an increase from $1.25 delivered the same quarter last year. Management, on the other hand, expects the company’s EPS to range between $1.87 and $2.01.

What to look for when Applied Materials report

Applied Materials boasts of a robust portfolio that continues to affirm its competitive edge in the memory sector. During the fiscal fourth quarter, more people are believed to have upgraded their equipment in response to the deployment of the 5G network in key markets.

Increased adoption of the internet of things, artificial intelligence, and big data is another development that affirms solid fundamentals in the semiconductor space. Strong demand in the quarter should have supported the company’s top-line growth in the quarter.

The focus will be on the Semiconductor Systems business when it reports as it is the key revenue driver. Heading into Q4, the unit had record backlog, expected to produce 73% of the total revenue. Wall Street expects the segment to deliver $4.6 billion and improvement from $3.1 billion delivered the same quarter last year.

The segment is expected to deliver record revenue driven by strong demand for foundries used to produce chips in the quarter. In recent months, many chip companies have been looking to develop chips capable of handling more functions such as 5G and artificial intelligence. The fact that most of these companies are running to Applied Materials enhances the prospects of higher revenue.

Applied global services is another division worth paying close watch to when the company reports. Wall Street expects the division to post $1.3 billion in revenue, up from $1.1 billion delivered the same quarter last year. The division is at the heart of a push to grow subscription revenue.

Display and adjacent markets revenue is expected at $405 million, a decline from $485 million delivered the same quarter last year.

Bottom line

Applied Materials has been in fine form for the better part of the year, going by the 60% plus rally. The company is expected to deliver better than expected Q3 results driven by strong demand for semiconductor equipment. Consequently, the stock is likely to edge higher on the results topping estimates.

Amid the 60% plus rally, the stock still looks affordable while trading with a price to earnings multiple of 27. In contrast, the Nasdaq 100 is trading with a P/E of 35.