Buy This Alternative To Nvidia Stock For 2x Gains?

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Is it possible for Applied Materials stock (NASDAQ:AMAT) to reach close to $380 in the coming years? There is a strong likelihood, as the company is poised to benefit from the rising capital expenditures driven by the generative artificial intelligence boom. While AI leader Nvidia (NASDAQ: NVDA) captures headlines with its stock having increased over 3x in the past two years and its valuation nearing $4 trillion, lesser-known players like Applied are essential for producing the very AI chips that Nvidia markets. These stocks could present more value and significant upside potential.

The data presents a compelling case. According to SEMI, capital spending on advanced chip manufacturing equipment is expected to nearly double between 2023 and 2028, with global capex expenditures anticipated to exceed $100 billion in 2025 alone. Applied, which specializes in advanced equipment and software utilized to manufacture semiconductor chips—ranging from etchers and deposition systems to process control software—may be well situated to capture a substantial portion of this investment. The company’s clientele includes industry giants such as TSMC, Samsung, and Intel, positioning it as a central player in both the logic and memory sectors of the chip market.

AI Chips Will Drive Revenue Growth

Applied Materials has seen its revenues increase at a robust pace, with an annual growth rate of 13% over the last five years. Although the company is expected to experience a slowdown in sales growth to about 6% for FY’25, reaching $29 billion, growth could accelerate. If Applied manages to grow its sales at an average annual rate of nearly 22% over the next three years—driven by increased demand for advanced tools for producing memory and logic chips for AI—its revenues could rise from approximately $29 billion in FY’25 to about $53 billion by FY’28, representing an increase of roughly 81%.

Several trends may facilitate revenue growth in the upcoming years. The generative artificial intelligence (AI) surge is fueling a sharp increase in semiconductor demand. AI workloads necessitate substantial computational power, greater memory capacity, and more intricate chips, all of which require advanced manufacturing processes. Additionally, AI demands high-bandwidth memory and sophisticated chip packaging—areas where Applied Materials excels. For instance, producing HBM chips is three times as wafer-intensive as standard DRAM, owing to lower bit density and the necessity for 3D stacking. This directly results in higher demand for products manufactured by companies like Applied.

While Applied’s considerable exposure to China, which made up over a third of its revenue in FY’24, has raised investor concerns due to U.S. export restrictions, signs of easing tensions are emerging. Recently, the U.S. and China reached a trade agreement that includes rare earth exports. As part of this accord, the Trump administration relaxed recent export license requirements for certain chip design software sold to China. If this thawing of tensions continues and extends to semiconductor equipment exports, firms like Applied could gain improved access to an essential growth market.

Applied Has Already Done It In The Past

Applied Materials has performed well in recent years, climbing from approximately $85 in early 2021 to around $190 currently. However, the increase in AMAT stock over the past four years has not been consistent, as annual returns have exhibited much greater volatility compared to the S&P 500. The stock’s returns were 84% in 2021, -38% in 2022, and 68% in 2023, followed by 9% in 2024 and 17% year-to-date so far in 2025. In contrast, the Trefis High Quality (HQ) Portfolio, comprising 30 stocks, has proven to be significantly less volatile. Moreover, it has outperformed the S&P 500 every year in that timeframe. What accounts for this? As a collective, HQ Portfolio stocks have yielded better returns with diminished risk compared to the benchmark index; offering fewer wild fluctuations as shown in HQ Portfolio performance metrics.

Margins Should Remain Thick Driven By Higher-End Products

When we combine this substantial revenue growth with the fact that Applied’s adjusted net margins (net income, or profits remaining after all expenses and taxes, represented as a percentage of revenues) are on an upward trajectory—growing from 19.6% in FY’19 to 26.5% in FY’24—we see that the company has benefitted from improved economies of scale and a more premium product mix. We anticipate that margins could continue to rise to approximately 31% by FY’28 as Applied concentrates on new technologies such as Gate-All-Around (GAA) semiconductor equipment, while also effectively managing its costs. Applied is experiencing faster growth in its services sales compared to products, which could furthermore enhance margins since services contracts typically yield recurring revenues and are increasingly focused on more lucrative software. Additionally, Applied has demonstrated considerable discipline in its capital expenditures as compared to other competitors in the chip sector, which could also contribute to higher margins. The combination of approximately 81% revenue growth with about a 20% increase in margins suggests an estimated 2.2x growth in earnings over the subsequent three years.

Strong Results Mean A Smaller Contraction In Earnings Multiples

If earnings do in fact grow by 2.2x, the P/E multiple would contract by 2.2x, assuming the stock price remains constant. However, this is precisely what investors in Applied Materials are wagering will not be the case. If earnings increase by 2.2x in the next few years, instead of the price to earnings multiple compressing from around 20x now to approximately 10x, a scenario where the P/E ratio stabilizes around 18x appears quite plausible, as the robust growth and expanding margins instill greater confidence in the future of Applied Materials.This would result in a potential doubling of Applied stock price from $190 to roughly $380 within the next few years, making it a realistic scenario.What is the time frame for this high-return possibility? While our example above illustrates a timeframe of roughly three years, in practice, whether it takes three years or four may not significantly differ; as long as Applied is on this revenue expansion path, with margins remaining stable, the stock price could respond accordingly.

While there may be upside potential for AMAT stock, there are inherent risks associated with investing in individual stocks. Conversely, the Trefis Reinforced Value (RV) Portfolio has exceeded its all-cap stocks benchmark (which combines the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to generate strong returns for investors. What is the reason for this? The quarterly rebalanced mixture of large-, mid-, and small-cap RV Portfolio stocks offered a responsive approach, allowing optimal capitalizing on thriving market conditions while minimizing losses during downturns, as elaborated in RV Portfolio performance metrics.