Not afraid of the stock price doubling within the year! Goldman Sachs Group, Inc. is bullish on Applied Materials (AMAT.US) DRAM+HBM, opening up long-term growth opportunities.

Goldman Sachs Group, Inc. recently released a research report, maintaining a "buy" rating on Applied Materials (AMAT.US) and raising the 12-month target price from $520 to $645, which is 7% higher than the latest closing price. The valuation provided by Goldman Sachs Group, Inc. corresponds to approximately 32 times normalized earnings per share, which is around $20 per share. This suggests that the bank values the company's long-term stable profit capability, rather than just short-term impressive performances. The core logic lies in dynamic random-access memory (DRAM). DRAM is widely used in servers, and high-bandwidth memory (HBM) is a high-end form of DRAM, serving as a core component for various high-performance AI acceleration chips. Applied Materials sells equipment for manufacturing DRAM. Goldman Sachs Group, Inc. predicts that the company's performance growth will outperform its peers by 2026. Currently, the company's order visibility extends to 2028, and combined with product price increases, there is potential for further expansion in performance growth. How does the prosperity of DRAM affect Applied Materials' profits? Applied Materials is not a chip design manufacturer; its main business involves equipment for chip internal film deposition, etching, and packaging processes. This means that Applied Materials' profits depend on the pace of semiconductor factory expansion, rather than the sales volume of a single chip. This business distinction is crucial for investors: investing in Applied Materials is essentially a bet on the entire industry's capital expenditure cycle, rather than the development prospects of a single customer. Data shows that Applied Materials' revenue in the second quarter increased by 11% year-on-year to $7.91 billion, reaching a record high; earnings per share were $2.86, higher than the market's expectations of $2.68. Goldman Sachs Group, Inc. currently predicts the company's 2026 non-GAAP earnings per share to be $14.15, approximately 6% higher than the market's general expectations. The profit growth of Applied Materials is mainly based on factors such as the expansion of DRAM and HBM production capacity, including new semiconductor factories; demand for advanced logic chips with a size of 2nm and below; and advanced packaging business. The company's management expects revenue growth in this sector to exceed 50% by 2026. Applied Materials' stock price has doubled this year, but the top two risks of chasing gains should not be overlooked. So far this year, Applied Materials' stock price has risen by 135%, while the S&P 500 index has risen by nearly 11% during the same period. On July 9, it was reported that Applied Materials, Inc. CEO Gary Dickerson mentioned in an interview that chip manufacturers are sharing equipment demand outlook for the next two years or longer with the company to ensure smooth expansion of production capacity. This indicates that the current investment boom driven by artificial intelligence may last longer than expected. Applied Materials' stock price rose in response. Dickerson also mentioned some plans that could extend until 2030. Long-term forecasts provided by customers allow suppliers to increase capacity before formal orders arrive. These comments have boosted analysts' optimism. TD Cowen raised Applied Materials' target price from $525 to $700 that day, while Mizuho Securities raised their target price to $650. Goldman Sachs Group, Inc. is confident in the fundamentals of Applied Materials, but is cautious about the timing of entry. The bank explicitly expressed this in its second-quarter semiconductor industry outlook. Analysts expect the performance of most semiconductor sub-industries in the second quarter to exceed expectations, but the Philadelphia Semiconductor Index has risen by about 88% in the quarter, while the S&P 500 index has only risen by about 14% in the same period. When a sector's outperformance significantly outperforms market indices, merely delivering good performance is not enough to support stock prices, and performance thresholds will increase as stock prices rise. Applied Materials is expected to release its third-quarter earnings on August 13, with market expectations of $3.39 earnings per share and revenue of $8.94 billion. Goldman Sachs Group, Inc. points out two major risks, and the stock price of Applied Materials has not fully absorbed these bearish factors yet. The first major risk comes from the regulatory side. Most of Applied Materials' equipment is sold to mainland China, Taiwan, and South Korea. If a new export control policy targeting advanced process equipment is introduced, the company's business will be impacted. The second major risk is industry competition. Chinese semiconductor equipment manufacturers continue to grab market share, squeezing Applied Materials' target market space. Data shows that out of 29 analysts covering Applied Materials, the average target price is $617.21, slightly higher than the current price of $602.50. For long-term investors, the DRAM and advanced packaging sectors have long-term structural growth logic, rather than short-term cyclical trends, which align with the changing trends in memory chip demand. For new investors, the financial report on August 13 is worth paying attention to, as it will verify whether the long-term growth expectations proposed by management are turning into actual orders.