We recently published a list of 10 Best Automation Stocks to Buy Now. In this article, we are going to take a look at where Applied Materials, Inc. (NASDAQ:AMAT) stands against the other automation stocks.
2023 was the year of generative AI, mainly because of the widespread adoption of ChatGPT and the resulting response that followed. Now, 2024 is the year in which companies have truly started using this ever-evolving technology. McKinsey revealed that AI supported the companies in both aspects: cost decreases and revenue jumps.
Automation Technologies- Key Trends
In 2024, the integration of automation technologies continues to revolutionize every aspect of supply chain management. This led to unprecedented levels of efficiency and agility. The global integrated automated supply chain is expected to reach US$25.6 billion by 2033, from US$13.4 billion in 2023, according to industry data by Market.us.
From removing warehousing bottlenecks to inventory management and demand forecasting, supply chain automation reshaped traditional practices and redefined the dynamics of the logistics industry. In inventory tracking, advanced warehouse management systems, which are powered by AI and ML algorithms, focus on optimizing inventory placement, route planning, resource allocation, etc.
Inventory tracking and management are being revolutionized through the usage of automation solutions, such as RFID tagging, barcode scanning, and computer vision. Real-time tracking technologies are offering granular visibility in inventory movements. This allows businesses to monitor stock levels, spot discrepancies, and manage understocking/overstocking. Manufacturers are now getting inclined towards smart factories.
Smart factories reflect and demonstrate Industry 4.0 principles. They tend to leverage 5G, IoT, AI, and other advanced technologies. Experts believe that smart factories allow predictive maintenance and decision-making.
Adoption of Advanced Automation
A new theme is emerging in the field of automation, which is automated decision-making. Its adoption rapidly expanded beyond traditional sectors such as manufacturing and logistics. Demand for decision intelligence stems from data-driven and well-informed decision-making requirements which enhances corporate competitiveness and efficiency.
Automated decision-making is now being accepted by critical domains including healthcare and finance. In healthcare, automation supplements the clinical decision-making processes, improves patient-care delivery, and manages resource allocation. It involves leveraging AI and ML algorithms to assess patient data, medical images, and genomic sequences, and customize patient care.
Likewise, in finance, automated systems continue to reshape top-notch operations like risk assessment, fraud detection, and investment management. AI algorithms assess large datasets of financial transactions and market trends to optimize investment strategies. In 2024, the software development industry is all set to embark on a remarkable transformation with cutting-edge innovations.
Quantum Computing and Robotics
The latest technologies in software that are expected to reshape the landscape include quantum computing, virtual reality (VR), augmented reality (AR), big data, data analytics, 5G technology, robotics, etc.
Quantum computing continues to rapidly advance, evolve, and reshape scientific and industrial landscapes. Unlike classical computers—which use bits as the smallest information unit—quantum computers make use of qubits. These exploit quantum mechanics principles to perform complex and difficult calculations. For example, at the time of drug discovery, quantum algorithms simulate molecular interactions in a more accurate and refined way as compared to traditional methods. The integration of quantum computing with AI is another critical emerging trend.
The unprecedented advancements in robotics and AI are expected to bring revolutionary positive transformations. More and more sectors continue to understand the benefits of adopting robotics and AI. Globally, the robotics market should achieve healthy revenue growth, with a projected value of US$38.24 billion this year. The strongest segment in the robotics market is expected to be service robotics, which should lead in market volume. Service robotics find its application in sectors, like Healthcare, Medical, Military and Defense, Logistics, etc. while industrial robots are used in Automotive, Electronics, Food & Beverage, etc.
The trends driving the robotics market are supported by developments in emerging technologies. These include 5G, AI, Edge Computing, IIoT, cloud, open-source, etc. Since AI in robotics continues to evolve, more and more industries are exploiting the latest technologies. Therefore, manufacturers are making data-driven decisions. Some industries use self-learning robots to execute work processes.
Smart factories are using AI-enabled robotics to execute smarter, reliable, and efficient processes. They help in production optimization. AI-powered robotic technologies, which include computer vision and tactile sensing, are utilized to help automate certain tasks. For example, reinforcement learning is used for better industrial assembly. The adoption of robotics, smart automation, and high-tech manufacturing will help workers with manual labor and reduce repetitive tasks.
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A technician in a clean room assembling a semiconductor chip using a microscope.
Applied Materials, Inc. (NASDAQ:AMAT)
Average Upside Potential: 25.54%
Applied Materials, Inc. (NASDAQ:AMAT) is the world’s largest supplier of semiconductor manufacturing equipment. It offers materials engineering solutions, which help in making nearly every chip. The company’s Applied Global Services® (AGS) segment provides integrated solutions, which are focused on optimizing equipment and fab performance and productivity, including spares, upgrades, remanufactured earlier generation equipment and factory automation software for semiconductor, display and other products. Its SmartFactory® automation software portfolio helps in streamlining all the aspects of a factory (such as processes, equipment and people to provide competitive advantage.
The strong revival in chip demand throughout end-use sectors is expected to support the broader automation industry. These end-use sectors include consumer electronics and automotive, higher adoption of advanced technologies including Al, Internet of Things, robotics, etc.
With this, Applied Materials, Inc. (NASDAQ:AMAT) is well-placed to benefit from the increased demand for its products. This is because the company has the most promising portfolio of materials engineering technologies for chips that underpin tectonic shifts in technology such as AI, IoT, EVs, and clean energy. Therefore, these long-term secular trends are expected to act as tailwinds.
The company’s leading-edge tools, primarily for Al chips and high-bandwidth memory, are expected to see a boost over the near future.
In 2Q 2024, the company delivered revenue and earnings, which were towards the high end of its guided range. It generated revenues of $6.65 billion. Its GAAP EPS came in at $2.06 and non-GAAP EPS at $2.09, reflecting a rise of 11% and 5% YoY, respectively.
Because of secular trends, the company has seen significant improvement in its financials. Applied Materials, Inc. (NASDAQ:AMAT) saw its sales rise from over $23 billion in fiscal 2021 to more than $26 billion as of FY23. In 1H 2024, the company’s sales went up by 14% YoY to reach $13.3 billion.
Analysts at Cantor Fitzgerald increased their price objective on shares of Applied Materials, Inc. (NASDAQ:AMAT) from $260.00 to $290.00. They provided an “Overweight rating on 16th July.
According to Insider Monkey’s 1Q 2024 data, 79 hedge funds were long Applied Materials, Inc. (NASDAQ:AMAT). Their stakes were worth $5.9 billion.
Overall, AMAT ranks 8th on our list of best automation stocks to buy. While we acknowledge the potential of AMAT as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMAT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.