Is Applied Materials Inc. (AMAT) the Most Profitable Large Cap Stock to Invest In?

We recently compiled a list of the 8 Most Profitable Large Cap Stocks To Invest In. In this article, we are going to take a look at where Applied Materials Inc. (NASDAQ:AMAT) stands against the other profitable large cap stocks.

US Stocks Surge as Economic Outlook Brightens

In the second half of 2024, the financial markets are navigating a complex landscape marked by volatility and cautious optimism. Recent reports indicate that the US economy has shown resilience, with growth rates remaining solid despite concerns about inflation and potential recession. Analysts from JPMorgan Asset Management highlight that the US economy has shown strong momentum in recent months, fueled by resilient consumer spending. Analysts suggest that with few excesses in cyclical sectors, the likelihood of a recession triggered by internal factors remains low. Moderate consumer spending is expected to support steady growth into 2025. However, with the upcoming US election, shifting monetary policies, and ongoing geopolitical tensions, there are external risks that could impact this expansion.

On October 9, 2024, US stocks rose for the second consecutive session, with the S&P 500 and Dow Jones Industrial Average closing at record highs. The S&P 500 climbed 0.71% to finish at 5,792.04, while the Nasdaq Composite gained 0.6%, closing at 18,291.62. The Dow surged by 431.63 points, or 1.03%, to settle at 42,512.00 and at a record close. Technology stocks led the rally, reflecting strong investor sentiment despite ongoing geopolitical concerns.

The market's positive momentum followed the release of minutes from the Federal Reserve's September meeting, which disclosed a preference among many participants for a larger rate cut. Mike Bailey, director of research at FBB Capital Partners, noted that the Fed's actions are a key driver behind the market's performance.

Overall, Wall Street is showing resilience, supported by optimism regarding the Fed's ability to manage a soft landing for the economy, especially after the September jobs report showed strong growth in the labor market.

In a recent interview on CNBC's "Closing Bell," Malcolm Ethridge, managing partner at Capital Area Planning Group, shared his insights on the current state of the markets, particularly regarding mega-cap stocks and the impact of artificial intelligence (AI). Ethridge emphasized that the ongoing bull market, which has seen a remarkable 60% increase over the past two years, is likely to continue, driven primarily by advancements in AI technology. He noted that AI has demonstrated significant staying power, with companies like Microsoft and NVIDIA leading the charge. Ethridge posed an intriguing question: which stock will emerge as the next major player in the ongoing AI arms race?

Ethridge pointed out that mega-cap companies have not relied heavily on borrowing for growth. As the Federal Reserve begins to cut rates, he believes this will enable more companies to issue debt or borrow and invest in AI, potentially fueling further market expansion. He cautioned, however, that historical norms may not apply in this unique economic environment shaped by the COVID-19 pandemic. Overall, Ethridge remains optimistic about mega-cap stocks leading the way.

Methodology

To compile our list of the 8 most profitable large-cap stocks to invest in, we used stock screeners from Finviz and Yahoo Finance. First, we defined large-cap stocks as those with a market capitalization between $20 billion and $200 billion. Next, we focused on profitability by filtering for stocks that had an estimated 5-year EPS growth rate of over 10%. We sorted our results based on market capitalization and picked the top 20 stocks.

From this initial list of 20 profitable large-cap stocks, we further narrowed our choices to stocks that had positive trailing twelve-month (TTM) net income and stocks that have grown their net income positively over the past 5 years. To ensure the reliability of our findings, we consulted reputable sources such as SeekingAlpha, which provided insights into the net income compound annual growth rate (CAGR) over the past five years, and Macrotrends, which offered information on TTM net income.

Finally, from this list of large-cap stocks that met our criteria, we focused on the top 8 stocks most favored by institutional investors. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s database of 912 elite hedge funds. The 8 most profitable large-cap stocks to invest in are ranked below in ascending order based on the number of hedge funds holding stakes in them as of Q2 2024.

Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A technician in a clean room assembling a semiconductor chip using a microscope.

Applied Materials Inc. (NASDAQ:AMAT)

TTM Net Income: $7.45 Billion 

5-Year Net Income CAGR: 21.92%

Number of Hedge Fund Holders: 77

Applied Materials Inc. (NASDAQ:AMAT) is an American company that specializes in materials engineering solutions essential for manufacturing semiconductor chips and advanced displays. As one of the largest suppliers of semiconductor equipment globally, the company provides a range of products and services that support the production of electronics, flat panel displays, and solar products, playing a crucial role in the tech industry.

The company is at the forefront of advancing semiconductor technology, focusing on energy-efficient computing to support the growing demands of artificial intelligence (AI) and other emerging technologies. The company is enhancing its product offerings by integrating materials engineering solutions, which are crucial for improving chip performance. This includes innovations in advanced logic, high-performance DRAM, and high-bandwidth memory, all designed to meet the increasing need for power-efficient chips in data centers and other applications.

Applied Materials Inc. (NASDAQ:AMAT) aims to enhance its collaborations in order to stay ahead in the evolving device architecture landscape, boost success rates, and improve investment efficiency. To support its partnerships, Applied Materials plans to develop its global EPIC platform over the next few years. This platform is designed to promote rapid innovation and help bring next-generation technologies to market more quickly. With a strong market position and a commitment to research and development, the company is well-equipped to capitalize on the multi-trillion-dollar opportunities presented by AI, IoT, robotics, electric and autonomous vehicles, and clean energy.

Applied Materials Inc. (NASDAQ:AMAT) recently reported impressive results for the third quarter of 2024, achieving record revenue of $6.78 billion, a 5% increase from the same period in the previous year. Strong demand for its innovative products and services, particularly in the AI sector, has positioned the company for continued growth in the semiconductor market.

In addition to robust revenue, the company generated $2.39 billion in cash from operations and returned $1.19 billion to shareholders through dividends and share repurchases. CEO Gary Dickerson highlighted that the ongoing race for AI leadership is driving demand for their unique offerings, setting the stage for Applied to outperform its competitors in the long run.

Over the past five years, Applied Materials Inc. (NASDAQ:AMAT) has grown its revenue at a compound annual growth rate (CAGR) of 12.94%, while its net income has increased at a CAGR of 21.92% during the same period.

Analysts are also bullish on AMAT. Analysts currently hold a consensus buy rating on the stock and the 1-year median price target of $232.50 set by analysts indicates a potential upside of 13.38% from current levels.

As of the second quarter of 2024, Applied Materials Inc. (NASDAQ:AMAT) was held by 77 hedge funds, according to Insider Monkey’s database. Parnassus Investments stated the following regarding Applied Materials Inc. (NASDAQ:AMAT) in its second-quarter 2024 investor letter:

Overall AMAT ranks 7th on our list of the most profitable large cap stocks to invest in. 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 time frame. 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.