Bank of America Downgrades Applied Materials Amid Weak Outlook

According to the latest news, Bank of America has downgraded Applied Materials, a leading supplier of semiconductor manufacturing equipment, from Buy to Neutral. The brokerage has also cut its price objective for the company from $190 to $180.

The primary reasons cited for the downgrade are a weaker-than-expected fiscal fourth-quarter outlook and Applied Materials' growing exposure to sluggish chip equipment segments. Bank of America noted that Applied's heavy reliance on mature-node demand, especially in China, and softer spending from major customers like Intel are weighing on the company's visibility and could continue to hold back its growth into 2025.

As a result, the bank has reduced its fiscal 2026 and 2027 adjusted earnings estimates for Applied Materials by 9% and 5%, respectively. While the brokerage still views Applied as a high-quality supplier, it believes the company is underperforming the overall wafer fab equipment (WFE) market and may be losing market share to peers such as Lam Research and KLA.

In fact, Bank of America estimates that Applied lost roughly 200 basis points of market share in 2024 due to slower sales in areas like etch and deposition. The bank also warned of potential longer-term competition from Chinese equipment makers in areas where Applied has historically been strong, such as chemical mechanical planarization (CMP) and ion implantation.

Despite these challenges, the bank maintains its valuation framework for Applied Materials at 18 times 2026 earnings. The stock currently trades at a discount to Lam Research on 2026 earnings, and Bank of America said the stock could benefit if China's licensing situation improves or Intel increases its capital spending. However, the near-term momentum for the company appears to be weak.