Applied Materials

Methodology

Applied Materials' semiconductor equipment business is highly cyclical with dramatic earnings swings based on chip manufacturers' capital spending. During industry upturns earnings surge; during downturns they collapse sharply. This works poorly with volatile spot earnings—use mid-cycle margins and normalized capex assumptions for meaningful estimates.

Methodology

Applied Materials' PEG fluctuates wildly across semiconductor cycles, often appearing cheapest at cycle peaks when growth is highest but unsustainable. Leadership in advanced chip equipment justifies premium valuations during up-cycles, but timing is critical. Compare to semiconductor capex trends and historical ranges to identify when valuations reflect cycle positioning versus fundamentals.

Methodology

Applied Materials maintains modest dividends and grows them even through downturns, providing some total return stability. Strong cash generation during up-cycles supports dividends and substantial buybacks. PEGY better captures appeal for investors seeking leveraged semiconductor exposure with income cushion during inevitable cyclical downturns.