Want to know who’s behind Nvidia’s success? Hint: It’s more than just GPUs! 🤔

Nvidia is set to report earnings next week, and if the results surpass expectations, Applied Materials (AMAT) might benefit significantly. Nvidia’s CEO, Jensen Huang, highlighted that Nvidia’s GPUs and accelerated computing wouldn’t exist without Applied Materials, which has transformed the semiconductor industry by developing critical chip processing tools. These include epitaxial reactors and chemical mechanical polishers (CMPs), which are essential for creating and refining semiconductor wafers. These processes involve adding, polishing, etching, and depositing materials on wafers to form electronic circuits. Applied Materials’ role in the semiconductor supply chain, particularly with high-bandwidth memory packaging driven by AI demand, is expected to boost its revenue significantly in the coming years. AMAT’s stock is already up about 30% year to date.

The Foundation of Accelerated Computing

NVIDIA’s advancements in GPUs and accelerated computing have revolutionized various industries, but these innovations wouldn’t be possible without the foundational technologies provided by Applied Materials. Jensen Huang, NVIDIA’s CEO, has explicitly acknowledged the indispensable role that Applied Materials plays in the creation of GPUs. This statement is not just a nod to Applied Materials but a recognition of the fundamental chip processing tools they have pioneered.

Innovations That Changed the Semiconductor Industry

Applied Materials has revolutionized the semiconductor industry with groundbreaking inventions in chip processing. Among their most notable contributions are epitaxial reactors and chemical mechanical polishers (CMPs). Epitaxial reactors are sophisticated machines that apply different layers of materials onto a semiconductor wafer. These layers alter the wafer’s electrical properties, making specific areas more or less conductive, a critical process before the wafer becomes a memory device or microprocessor.

CMPs, on the other hand, polish these layers to ensure they fit together seamlessly without gaps or electrical inconsistencies. This polishing process is essential for creating what is known as a planarized wafer, which is then ready for subsequent processing steps like etching and deposition. Etching involves carving tiny channels into each layer of the wafer, dictated by the circuit design provided by companies like NVIDIA. Deposition then fills these channels with a conductive metal, transforming the planarized wafer into an electronic circuit.

These intricate processes highlight Applied Materials’ expertise and their critical role in the semiconductor industry. Their machines are not just tools but are integral to the creation of the semiconductors that power modern computing.

Expanding Horizons with High-Bandwidth Memory Packaging

Beyond their existing contributions, Applied Materials is also positioned for significant growth in other semiconductor solutions. The company has recently highlighted the booming demand for high-bandwidth memory (HBM) packaging, particularly driven by the rise of generative AI. On recent earnings calls, Applied Materials projected that their revenues from HBM packaging are expected to quadruple year over year. This projection reflects the growing importance of AI and the increasing demand for more advanced semiconductor solutions.

As generative AI continues to expand, the need for high-performance memory solutions becomes even more critical. Applied Materials is well-positioned to capitalize on this trend, with their innovative packaging solutions playing a pivotal role in the future of AI and other advanced technologies. This anticipated growth in revenue indicates a promising outlook for Applied Materials, suggesting that their financial performance will continue to strengthen in the coming years.

A Promising Outlook for AMAT Stock

Applied Materials’ stock has already shown impressive performance this year, with a year-to-date increase of approximately 30%. This growth reflects the market’s recognition of Applied Materials’ essential role in the semiconductor industry and its potential for further expansion. With NVIDIA’s earnings report on the horizon, there’s a strong possibility that Applied Materials could see even more upward momentum.

Investors are closely watching NVIDIA’s performance, as a strong earnings report could lead to a ripple effect across the tech sector, benefiting companies like Applied Materials that are integral to NVIDIA’s success. Given the robust demand for their semiconductor solutions and the company’s innovative approach to chip processing, Applied Materials stands out as a key player poised for continued growth in the tech industry.

Insights

• Sympathy Stock Movement: AMAT could see a price increase if Nvidia’s earnings exceed expectations.
• Critical Technology: AMAT’s technology is essential for the semiconductor manufacturing process.
• Revenue Growth Potential: Generative AI demand is driving revenue growth for AMAT’s semiconductor solutions.

The Essence (80/20)The Origins and Evolution of the 80/20 Principle The Discovery by Vilfredo Pareto In 1897, Italian economist Vilfredo Pareto uncovered a striking pattern in his study of wealth and... More

Applied Materials (AMAT) is crucial to the semiconductor industry, providing essential tools like epitaxial reactors and CMPs, which are integral to Nvidia’s GPU production. With Nvidia’s strong performance, especially in AI-driven applications, AMAT stands to gain as a sympathy stock. The growth in high-bandwidth memory packaging, driven by generative AI, is poised to significantly boost AMAT’s revenue in the coming years.

The Guerilla Stock Trading Action Plan

• Investment Consideration: If Nvidia’s earnings report is strong, consider investing in AMAT as it could benefit from Nvidia’s success.
• Monitor Market Reactions: Pay close attention to the semiconductor sector’s reaction to Nvidia’s earnings.
• Follow AMAT’s Earnings: Keep track of AMAT’s upcoming earnings reports and their revenue forecasts, particularly in AI-related technologies.

Blind Spots

The potential impact of broader market conditions on AMAT’s stock performance might be overlooked, especially if there’s volatility in the tech sector or unexpected regulatory changes affecting the semiconductor industry.

Blind Spot 1: Overreliance on Nvidia’s Performance

Description: Investors may place too much emphasis on Nvidia’s earnings when assessing AMAT’s potential, overlooking AMAT’s independent growth drivers, such as its diverse product line and other key customers. Remedy: Diversify the analysis by considering AMAT’s overall market position, product innovation, and its relationships with other major tech companies. Regularly review industry reports and AMAT’s earnings calls to gauge broader business health beyond Nvidia.

Blind Spot 2: Market Volatility and Macro Risks

Description: The potential impact of broader market volatility or macroeconomic factors (e.g., interest rate hikes, geopolitical tensions) on AMAT’s stock could be underestimated, leading to unexpected downturns. Remedy: Implement a risk management strategy, including setting stop-loss orders and staying informed about global economic trends that could affect the semiconductor industry. Consider dollar-cost averaging to mitigate the impact of short-term market fluctuations.

Blind Spot 3: Supply Chain Disruptions

Description: The risk of supply chain disruptions affecting AMAT’s ability to meet demand, especially given the complex global supply chain for semiconductor manufacturing, might be underestimated. Remedy: Stay updated on global supply chain trends, including potential bottlenecks or geopolitical issues that could impact material sourcing. Consider investing in companies that have diversified and resilient supply chains to reduce this risk.

Blind Spot 4: Technological Competition

Description: The possibility of emerging technologies or competitors eroding AMAT’s market share could be overlooked, especially in a rapidly evolving tech landscape. Remedy: Monitor emerging technologies and new entrants in the semiconductor equipment industry. Pay attention to AMAT’s R&D investments and partnerships to ensure they maintain a competitive edge. Regularly review industry analyses that highlight technological advancements and potential disruptors.

By addressing these blind spots, investors can develop a more balanced and comprehensive view of Applied Materials’ prospects and risks, leading to more informed decision-making.

AMAT Technical Analysis (daily)

This daily chart for Applied Materials (AMAT) shows a complex technical landscape with several important indicators that suggest potential future trends and areas of interest.

The stock is currently trading at $202.67, having recently faced resistance around the 50% Fibonacci retracementFibonacci retracement is a fundamental tool in the arsenal of technical analysts and traders. Rooted in the mathematical principles of the Fibonacci sequence, this technique is wid... More level at $213.65. It previously experienced a strong upward trend, reaching a high of $256.06 before pulling back sharply to a low of $191.25. The price has since bounced off this low, testing various Fibonacci retracement levels, particularly the 61.8% level at $223.66, which coincides with the 50-day moving average ($223.58). This area is acting as a significant resistance level. The 200-day moving average at $196.44 is currently providing support.

Volume analysis shows a decline in trading volume during the recent downtrend, with a slight increase as the price attempted to recover. This suggests a lack of strong buying pressure, potentially limiting the strength of any upward movement.

The Relative Strength IndexIn the world of technical analysis, the Relative Strength Index (RSI) stands as a cornerstone tool for traders seeking insights into market momentum. Developed by J. Welles Wilder ... More (RSI) is at 47.63, indicating a neutral momentum, neither overbought nor oversold. This suggests a consolidation phase or indecision in the market.

The On-Balance VolumeThe On Balance Volume indicator (OBV) is a technical analysis tool used to measure the flow of money into and out of a security over a specified period of time. It is a cumulative ... More (OBV) is in a negative trend, showing a decrease in volume on up days compared to down days. This indicates that selling pressure is still dominant.

The Stochastic RSIIn the realm of technical analysis, the Stochastic RSI (StochRSI) emerges as a powerful tool for traders seeking to navigate market dynamics with precision. Developed by Tushar S. ... More is at 0.736, close to overbought territory, suggesting that the stock might face some short-term selling pressure soon.

The Chaikin OscillatorNamed after its creator Marc Chaikin, the Chaikin Oscillator stands as a formidable tool in the arsenal of technical analysts. This oscillator is designed to measure the accumulati... More is positive at 4.373M, indicating some buying interest but not strong enough to confirm a strong bullish reversal.

The MACDThe MACD indicator is essentially a momentum indicator that shows the relationship between two different moving averages of price. The MACD is the difference between the 12-period ... More Oscillator shows a crossover of the MACD line over the signal line with a histogram value of 10.64, which is a bullish signal. However, the MACD line is still in negative territory, reflecting the prior downtrend’s impact.

Support Levels: The key support levels to watch are at $196.44 (200-day moving average) and $191.25 (23.6% Fibonacci retracement).

Resistance Levels: The key resistance levels are at $213.65 (50% Fibonacci retracement), $223.66 (61.8% Fibonacci retracement), and $223.58 (50-day moving average).

Future Trends: The chart indicates a potential for a continuation of the current consolidation phase between $196 and $223. A break above $223 could lead to a retest of the $240 level, while a breakdown below $196 could see the stock retest the recent low at $191.25 or lower. The mixed signals from the indicators suggest that while there is some short-term bullishness, the overall trend remains uncertain, with potential for further volatility.

AMAT Technical Analysis (weekly)

This weekly chart for Applied Materials (AMAT) shows key technical developments that provide insights into potential future trends over various time frames.

The stock is currently trading at $202.67, having recently faced a sharp decline from a high of $256.26. The price action suggests that it has retraced to the 61.8% Fibonacci level at $177.28, which provided strong support. This level is crucial as it coincides with the 150-week exponential moving average (EMA) at $180.59, further reinforcing the importance of this support zone. The 40-week EMA at $204.21 is now acting as immediate resistance, and a break above this could signal a potential recovery.

Volume analysis shows an increase during the recent sell-off, indicating that the decline was accompanied by strong selling pressure. However, the On-Balance Volume (OBV) remains in a long-term uptrend, suggesting that despite the recent decline, there has been a general accumulation of shares over the past year.

Support Levels: The critical support levels to monitor are $180.59 (150-week EMA), $177.28 (61.8% Fibonacci retracement), and $155.83 (78.6% Fibonacci retracement).

Resistance Levels: The immediate resistance is at $204.21 (40-week EMA), followed by $226.06 (23.6% Fibonacci retracement) and $256.26 (recent high).

Time-Frame Signals:
1-Year Time Frame: The stock is currently in a corrective phase, with the potential to stabilize above $180.59. A move above $204.21 could indicate a recovery towards $226.06.
2-Year Time Frame: If the stock can hold above the $177.28 level, it may continue to consolidate with an upward bias, potentially retesting the $226.06 level.
3-Year Time Frame: The long-term trend remains bullish if the stock maintains support above $177.28. A break above $256.26 could see the stock continuing its long-term uptrend.

Future Trends: The chart indicates a potential for continued consolidation between $177 and $204 in the short to medium term. A break above $204.21 could lead to a retest of higher resistance levels around $226.06 and possibly $256.26 in the longer term. However, if the stock breaks below the $177.28 support, it could trigger a deeper correction towards $155.83 or lower.

Past performance is not an indication of future results, and this article should not be considered as investment advice. Always conduct your own research and consider consulting with a financial advisor before making any investment decisions. 🧡

Looking Ahead

As the semiconductor industry continues to evolve, companies like Applied Materials remain at the forefront of innovation, driving the advancements that power modern computing. With NVIDIA’s upcoming earnings report, there’s a growing anticipation that Applied Materials could experience a significant boost in stock value. Their pioneering technologies, coupled with the expanding demand for advanced semiconductor solutions, position Applied Materials as a critical player in the tech landscape. For investors, AMAT represents a compelling opportunity, particularly in the context of the broader semiconductor industry’s growth trajectory.

Frequently Asked Questions

1. What is Applied Materials (AMAT)?

Applied Materials is a company that has revolutionized the semiconductor industry by inventing fundamental chip processing tools, such as epitaxial reactors and chemical mechanical polishers (CMPs).

2. How is Applied Materials related to Nvidia?

Applied Materials provides essential equipment for semiconductor manufacturing, which is crucial for Nvidia’s GPUs and accelerated computing. Nvidia’s products rely on the advanced chip processing tools developed by Applied Materials.

3. What role does Applied Materials play in semiconductor manufacturing?

Applied Materials manufactures machines like epitaxial reactors and CMPs that are used to process semiconductor wafers. These machines are essential in creating the layers and polishing them for the next steps in semiconductor fabrication, such as etching and deposition.

4. What is an epitaxial reactor?

An epitaxial reactor is a machine that applies different layers of materials onto a semiconductor wafer to change its electrical properties, making certain areas more or less conductive before it becomes a memory device or microprocessor.

5. What is chemical mechanical polishing (CMP)?

CMP is a process where the layers of a semiconductor wafer are polished to ensure they fit together without any gaps or electrical issues, which is essential before further processing like etching and deposition.

6. What is etching in semiconductor manufacturing?

Etching is the process of carving tiny channels into each layer of a semiconductor wafer, creating the patterns that form the electronic circuits as designed by chip designers like Nvidia.

7. What happens during the deposition process in semiconductor manufacturing?

During deposition, a conductive metal is deposited into the channels created during etching, turning the planarized wafer into an electronic circuit.

8. How does Applied Materials benefit from the demand for generative AI?

Applied Materials expects their revenues from high-bandwidth memory packaging, which is essential for generative AI, to quadruple year over year, indicating strong growth prospects.

9. How has Applied Materials stock performed year to date?

Applied Materials stock is currently up by around 30% year to date, reflecting the company’s strong performance and growth expectations.

10. Why might Applied Materials stock move higher if Nvidia reports strong earnings?

If Nvidia reports better-than-expected earnings, Applied Materials stock could move higher in sympathy, as their business is closely tied to the success of companies like Nvidia that rely on their semiconductor manufacturing tools.