AMAT Stock: Applied Materials Encroaches On ASML Business

Applied Materials (AMAT) earned positive reviews for its latest semiconductor manufacturing tools, which target high-end chips made using extreme ultraviolet, or EUV, lithography equipment from industry peer ASML (ASML). AMAT stock bounced back into a buy zone on the news.

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Santa Clara, Calif.-based Applied Materials on Tuesday introduced two new products to its lineup. First, the Centura Sculpta system promises a simpler, faster and more cost-effective alternative to EUV double patterning. Second, the VeritySEM 10 system precisely measures the dimensions of semiconductor device features patterned with EUV and emerging High-NA EUV lithography.

“We view Applied Materials’ announcements as an overall positive, as we believe both the Centura Sculpta and VeritySEM 10, albeit to a lower extent, expand the company’s opportunities in leading-edge patterning,” Deutsche Bank analyst Sidney Ho said in a note to clients. He rates AMAT stock as buy.

From a competitive standpoint, he sees no major implications for other semiconductor equipment players in the near term, including ASML, KLA (KLAC) and Lam Research (LRCX). The reason is it could take a couple of years before the Centura Sculpta platform is added to high-volume manufacturing process workflows at major chipmakers, he said.

Applied Materials expects revenue contributions of a few hundred million dollars over the next two to four years from the new products, Ho said.

AMAT Stock Rises On Product News

In trading on the stock market today, AMAT stock rose 1% to close at 117.26. On Tuesday, AMAT stock jumped 3.6% to close at 116.15, ending the day back in the 5% buy zone of its recent breakout.

On Feb. 1, AMAT stock broke out of a cup base at a buy point of 116.19, according to IBD MarketSmith charts. But it retreated back to its 50-day moving average line, a key support level, after Applied Materials reported its fiscal first-quarter results. However, in a positive sign, it didn’t drop enough to trigger a stop-loss sell rule, based on IBD trading guidelines.

UBS analyst Timothy Arcuri reiterated his neutral rating on AMAT stock after the announcements. The new Applied Materials products are a nice addition but not a game changer for the company, he said in his note to clients.

Possible Long-Term Headwind For ASML

The Centura Sculpta platform could lead to significant cost savings and speed up production for chipmakers producing leading-edge chips. It eliminates a second step in the EUV chip manufacturing process called double patterning.

Double patterning refers to a lithography method where a chip pattern is printed in the same location twice for better resolution and precision as feature sizes get smaller.

The Applied Materials system complements EUV lithography using a technique called pattern shaping, TD Cowen analyst Krish Sankar said. It uses a plasma ribbon beam to remove mask material from the wafer. Sankar rates AMAT stock as outperform.

Longer term, the system could provide a headwind for ASML, Sankar said in a note. That’s because the manufacturing process improvements could result in fewer EUV lithography systems needed, he said.

Chip Gear Makers On Tech Leaders List

On Wednesday, ASML stock dipped 0.5% to close at 614.95. On Tuesday, it dropped 2.3%.

ASML stock ranks fifth out of 29 stocks in IBD’s semiconductor equipment industry group, according to IBD Stock Checkup. AMAT stock ranks eighth in the group.

Both ASML and Applied Materials are on the IBD Tech Leaders list. KLA and Lam Research also are on the Tech Leaders list.

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.

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