Applied Materials last night provided more evidence that the semiconductor business could hit bottom in the next couple of quarters, but the strength of the rebound remains the big unanswered question.
AMAT said that orders remain weak, but are bottoming out. The leading chip equipment firm said it expects a modest rebound early next year, and a return to strong growth in the second half of 2002. Interestingly, AMAT said it is seeing orders for next-generation equipment more than for increased capacity, which could be good news for a pure-play next-generation equipment firm like Novellus
.
Like almost all tech stocks, the problem with Applied Materials remains valuation. AMAT beat estimates by 2 cents with 5-cent earnings, down 93% from a year ago, when the company earned 70 cents a share. The company trades at 41 times fiscal 2001 (ending in October) estimates of $1.05 a share, and 40 times flat 2002 estimates. That’s double the company’s long-term projected growth rate of 20%.
And that trailing price-to-earnings ratio could get much worse before it gets better. Including this quarter, Applied Materials should earn a total of about 20 cents a share over the next three quarters. Depending on how much the company earns in its April 2002 quarter, AMAT could have a PE north of 100 by the time business begins to rebound.
AMAT is trading up on the better-than-expected earnings news this morning, but the stock’s chart doesn’t look all that promising, with a consolidation broken last week that seems to argue for more downside. 40 is critical support, and 49 is key resistance.
BEA Systems and NVIDIA
also topped estimates last night, and at PEs of 45 and 49, they are trading a little closer to their long-term projected growth rates of 35%-40%.
But BEAS broke critical support at 20 recently, and as a leader in the technically weak software sector, a lower share price is not out of the question at some point. A move above 21-22 would be a plus.
NVIDIA has been one of the stellar performers in the tech sector this year, but it recently had a number of negative divergences in technical indicators, such as stochastics, which made a higher high when the stock made a lower high, meaning that momentum may be waning. If nothing else, the stock’s great gains may be a thing of the past.
