Stock Split Watch: Is Applied Materials Next?

Applied Materials (NASDAQ: AMAT) is a linchpin of the semiconductor market. It's one of the world's top suppliers of chip manufacturing equipment, and it serves a broad range of customers across the foundry, logic, and memory chip markets. Its major customers include Taiwan Semiconductor Manufacturing, Samsung, Intel, and Micron Technology.

Over the past 10 years, Applied Materials' stock has rallied nearly 600%. From fiscal 2014 to fiscal 2024 (which ended this October), its revenue grew at a compound annual growth rate (CAGR) of 12% as its earnings per share (EPS) increased at a CAGR of 26%. That robust growth was driven by the ongoing expansion of the semiconductor market. But with its stock currently trading at about $170, some investors might be wondering if Applied Materials might split its shares again.

Image source: Getty Images.

How many times has Applied Materials split its stock?

Applied Materials has already split its stock nine times since its initial public offering (IPO) in 1972. If you had bought 100 of its IPO shares at $10 for $1,000, you would now be holding 28,800 shares worth a whopping $4.9 million. You would also be receiving about $46,000 in annual dividends.

Data source: Applied Materials.

Based on its current price, Applied Materials seems ripe for another stock split. However, it's been about 22 years since its last stock split.

Why hasn't Applied Materials split its stock again?

It's unclear why Applied Materials stopped splitting its stock over the past two decades, but it might be because those splits didn't actually make its stock any cheaper. A forward stock split simply reduces the trading price by carving a single share into smaller slices, so it doesn't make it any cheaper relative to its sales, cash flow, or profits. The rise of commission-free and fractional trading makes stock splits even less relevant.

Yet stock splits still attract a lot of attention from the media and retail investors. They also make it cheaper to trade options, since each options contract is tethered to 100 shares of a stock, and give companies more flexibility in paying their employees stock-based bonuses.

So just like ASML and TSMC -- which also haven't split their shares for years -- Applied Materials probably decided to focus on growing its core business, resisting cyclical downturns, buying back more shares, and raising its modest dividend to reward its long-term investors.

How much higher could Applied Materials' stock climb?

In fiscal 2021, Applied Materials' revenue jumped 34% as chipmakers scrambled to expand their production capacity to cope with the chip shortages during the pandemic. Its revenue rose another 11% in fiscal 2022, but only grew 3% in fiscal 2023 and 2% in fiscal 2024 as the PC, smartphone, industrial, and automotive markets cooled off. Inflation, rising interest rates, and other macro headwinds exacerbated that pressure.

But from fiscal 2024 to fiscal 2026, analysts expect Applied Materials' revenue and EPS to grow at a CAGR of 9% and 10%, respectively. It expects that growth to be driven by the market's growing demand for AI chips and energy-efficient chips, the memory chip market's cyclical recovery, and the rollout of new OLED screens and IT-oriented devices. It also plans to lock in its customers with integrated solutions that merge multiple process steps (such as material deposition, etching, and material modification) into a single system.

Based on those expectations, Applied Materials' stock still looks like a bargain at 18 times forward earnings. Assuming it maintains that valuation and matches analysts' earnings expectations, its stock could easily rise about 12% to $191 over the next 12 months. That gain probably won't impress any growth-oriented investors, but it's still a reliable investment for long-term investors who want to profit from the secular expansion of the semiconductor market. So instead of wondering if Applied Materials will ever split its stock again, investors should simply buy it today without fretting over its current trading price.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $363,386!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,183!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $456,807!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of November 18, 2024

Leo Sun has positions in ASML. The Motley Fool has positions in and recommends ASML, Applied Materials, Intel, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.