Applied Materials (AMAT) is back in focus after fresh commentary around AI infrastructure spending and data center build outs highlighted the company as a key supplier of semiconductor manufacturing equipment benefiting from this trend.

The strong AI and data center narrative has been reflected in the share price, with a 30 day share price return of 27.95% and a 90 day share price return of 44.51%. The 1 year total shareholder return of 211.52% points to powerful momentum rather than a short lived spike.

If you want to see which other AI exposed companies are drawing similar attention, it is worth scanning 48 AI infrastructure stocks

With Applied Materials now trading near its analyst price target and posting very strong 1 year and year to date returns, the key question for you is whether there is still a reasonable entry point here or if the market is already pricing in years of AI driven growth.

Most Popular Narrative: 12.9% Undervalued

At a last close of $500.77 against a fair value estimate of $575, the most followed narrative implies Applied Materials still trades below its implied long term potential, anchored on AI related systems demand and richer margin assumptions.

Continuous innovation and leadership in advanced process technology and materials engineering allow Applied Materials to introduce next-generation products that command premium pricing. This, combined with successful value-based pricing initiatives and a favorable mix shift towards leading-edge solutions, is enabling margin expansion and higher earnings, as evidenced by recent record gross margin performance.

Want to see what kind of revenue run rate and profit margin profile needs to sit behind that fair value, and how long growth is assumed to hold up at elevated levels? The narrative connects those financial targets to a very specific outlook for advanced packaging, AI focused systems demand and the earnings multiple the stock would need to carry several years from now.

Result: Fair Value of $575 (UNDERVALUED)

However, export controls on Chinese customers and rising competition from Asian equipment suppliers could pressure Applied Materials revenue, margins, and the AI driven growth narrative that investors are watching.

Another View: Cash Flows Paint A Tougher Picture

While the popular narrative points to a fair value of $575 and frames AMAT as 12.9% undervalued, the SWS DCF model tells a different story. On that cash flow view, AMAT at $500.77 sits well above an estimated value of $216.32, which implies much less room for error if growth or margins fall short. Which set of assumptions feels closer to what you believe about the next few years for this business?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Applied Materials for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 47 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With sentiment running high around AI and fair value, it makes sense to pressure test the story against the numbers yourself and move promptly. To see what the market is optimistic about and decide whether that aligns with your expectations, start by reviewing the 4 key rewards

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.