Can AMAT Keep Riding the Semiconductor Boom?

**SPEAKER_1** (0:00)
Joining me right now is Matt Dmytryszyn, Chief Investment Officer of Composition Wealth. Thank you so much for being with us. Some of your expectations, I know you're closely watching the trajectory for growth and margins. Tell me more.

**Matt Dmytryszyn** (0:17)
Yeah, so we know there's a really strong backlog, particularly in the semi-cap equipment side of things. And we're looking at really high 20, low 30% growth rates, really for the next several years. You've heard that out of Lam Research, you've heard that out of KLA. I don't think AMAT is going to change that. I think the big question is, when you're getting that level of revenue growth over a multi-year period, in a business like Applied Materials, how high can margins grow? And I think that's one of the things we're hoping to get a little bit more color out of this earnings report.
The other week, Lam Research provided a little more guidance around margins. SanDisk today also provided some guidance around margins. So I think the street's more focused on the profitability now.

**SPEAKER_1** (0:59)
And when you look at names like Lam Research and KLA, what kind of story are they telling you? Because you were just doing somewhat of a comparison here in the group. What is the big story or theme to watch?

**Matt Dmytryszyn** (1:13)
Yeah, I think the beauty of that theme is just this such a strong demand for chips and not enough supply.
And the natural beneficiary of that is going to be the semi-cap equipment. And the beauty there is, especially when you have competitive advantages and really strong product lines, whether it's across, you know, DRAM capabilities or advanced logics, that's those are areas where I think that the demand for the equipment is going to be there. It doesn't really matter how market share shifts across those underlying memory companies, companies like LAM and Applied Materials are going to gain profit from that.

**SPEAKER_1** (1:52)
Yes, that 20 to 30 percent growth over the next few years, are there major headwinds to derail that or does that seem likely in your opinion?

**Matt Dmytryszyn** (2:03)
I think that seems likely just given the CAPEX spending plans and just the need for chips. When you've got SanDisk coming out today saying, look, we think double digit mid-teens growth rates through 2030, we don't have the capacity for that. You're going to need FAT build-outs. That's a three-year build-out cycle. You're going to naturally just need this equipment.
As we look at the semiconductor space, investors I think are focused on three things. It's visibility, it's the quality of the business and where are we at in the cycle. When you get companies like SemiCap Equipment Companies and particular Applied Materials, which we view as one of the higher quality names in the space, you really like that visibility that you're getting there in a high quality name.

**SPEAKER_1** (2:47)
You said one thing you're going to focus on is the wafer fab equipment market. Tell me more about that.

**Matt Dmytryszyn** (2:55)
Yeah.
I think the question is really how does that play out? You've got multiple elements of whether it's DRAM or high band memory or NAND, and how does that build out play out? Sandisk gave a pretty upbeat view around where the market for NAND is going to go. Then it's thinking through the semi-cap equipment side of who is going to be the beneficiary, what equipment is going to be needed and where are those potential build-outs and could it be greater? When you got like Micron talking about increasing their CapEx, they're going to be tied more to DRAM. How does Sandisk's announcements play into that? If there's more demand around NAND, that's something that we think would be good for both Applied Materials as well as LAM.

**SPEAKER_1** (3:41)
I mean, you mentioned Sandisk, so I'll bring it into the conversation. The stock is doing well here today. It's up 15% on the heels of its investor day.
What were some of your thoughts? They put out new targets, new trajectory. Your thoughts on the big picture?

**Matt Dmytryszyn** (3:58)
Yeah, I think two things. First, the high level of margin. So when you're talking 75% operating margins, that gives you pretty good comfort on the level of profitability. And then to comment and say, hey, 100% of excess free cash flow is going to go to shareholders. You feel pretty good that there's going to probably be some pretty strong returns of capital likely through buybacks on it.
Going back to that third part of I think what investors are focusing beyond beyond visibility and quality is the cyclicality.
Semiconductors are a cyclical business. This will be a cycle. It will have a cycle to it. We know the cycle were turned down. It's just a question of when because that's backing into how much you're willing to pay for the stock. And so Sandisk feels pretty comfortable putting out a target all the way through 2030 And you can look at this and say, look, I've got three to four years worth of visibility that this is going to be a growing market. You feel a lot more comfortable buying into that. You feel a lot more comfortable paying a higher multiple. Tying that back to Applied Materials, it's trading at 44 times earnings. This is a company that's historically traded 10 to 20 times. I'm okay paying 44 times earnings if I know I've got 20 to 30% top line growth and margin expansion coming. And I think that's where the market's focused on right now is how long does that cycle go? Because that backs into how high of a multiple I'm willing to pay.