Analyst Note
| Abhinav Davuluri, CFA |Wide-moat Applied Materials reported fiscal second-quarter revenue below the midpoint of management’s guidance and our expectations. The primary culprit was COVID-19-related shutdowns in China that delayed around $150 million of revenue in the quarter. Since most of its peers’ quarters did not include April, we think Applied Materials' results appear worse given the shutdowns had the biggest impact during the final month of its fiscal quarter. We suspect the likes of Lam Research, ASML, and KLA are also facing similar headwinds that will negatively weigh on their respective June quarter results. Despite supply challenges, wafer fab equipment, or WFE, demand remains robust. Management expects unconstrained demand for WFE to be over $100 billion in 2022. Given the firm’s backlog continues to grow, we have confidence in sequential growth over the rest of the year as supply improves. That said, we remain cautious of WFE spending slowing in 2023 as new capacity comes online and the ongoing chip shortage improves. We are maintaining our fair value estimate of $142 per share and view shares as attractive at current levels.