Applied Materials Inc

Our semiconductor-related businesses remain as structurally attractive as they did twelve months ago, but their stock prices increasingly require 2027 or 2028 spending levels to serve as a new and sustainable baseline. We see no evidence to suggest that won’t be the case, but that prospect has shifted from one of low-cost optionality when making our initial investments, to a requirement for driving attractive returns going forward. As a result, we’ve been lowering our collective exposure in recent weeks. Specifically, we sold portions of our Applied Materials investments across Ironvine strategies during the second quarter.

Applied Materials is a larger but broader player in the semiconductor manufacturing value chain, competing in various processes including etch and deposition, process control, and both front-end and back-end processes. The AI infrastructure build-out is a significant tailwind for these firms as hyperscalers require greater volumes of increasingly complex chips, driving chipmakers to invest heavily in capacity and cutting-edge technologies. However, concerns over semiconductor sentiment have emerged amid questions regarding the sustainability of hyperscaler capex and the risk of future oversupply.

The letter discusses Applied Materials in the context of semiconductor stocks, noting that many companies, including Applied Materials, trade on multiples that are stretched versus their own histories and are therefore fraught with risk. The manager highlights the cyclical nature of the semiconductor business and questions the sustainability of high returns on invested capital, stating that 'Many businesses we cover, such as Texas Instruments, ASML and Applied Materials, trade on multiples that are stretched versus their own histories and are therefore fraught with risk.'

Applied Materials, Inc. was one of the top contributors to absolute performance in the second quarter, highlighting its strong position within the technology sector. The manager emphasizes that technology performance is driven by semiconductors and semiconductor equipment, indicating a positive outlook for companies like Applied Materials that are integral to this growth. The focus on AI infrastructure further supports the belief in the company's potential for future earnings delivery and capital discipline.

Applied Materials and KLA reported strong results, translating to increased earnings estimates and increased confidence in the semiconductor capital equipment cycle. This reflects the robust cash flows required to support rapidly growing dividends, positioning Applied Materials favorably in the current market dynamics. The company is a key contributor to our portfolio, benefiting from the ongoing demand in the semiconductor sector, which is crucial for AI infrastructure and other technological advancements.

Applied Materials is owned for its Sustainability Lens exposure to Digital Infrastructure and Education themes, and for its high Corporate Resilience score. The stock benefited from a recovery in semiconductor capital expenditure, with leading-edge logic and memory chipmakers restarting investment programs deferred from the prior year. Applied Materials reported strong order intake and revised its full-year guidance upward, reflecting the broad-based nature of the semiconductor equipment recovery.

Applied Materials advanced alongside Lam Research, as investors extrapolated the strength of the Wafer Fab Equipment demand environment across the equipment complex. The company's leading positions in deposition, etch and transistor-processing tools position it as a direct beneficiary of the AI-driven foundry and memory-investment cycle. The capital expenditure cycle supporting AI compute has significant duration ahead of it, indicating strong future demand for Applied Materials' products.

We continue to anticipate higher-than-usual volatility and many leadership rotations in the second half of the year. We are optimistic about the portfolio’s positioning and prospects for the balance of 2026. We believe the LCV portfolio can add to its gains as the year unfolds. As demonstrated by our activity this year, we are proactively making changes that we believe are taking advantage of the market’s volatility and positioning us for continued gains in upcoming periods.

In the second quarter, Applied Materials (AMAT) was the largest contributor to portfolio performance after reporting solid operating results with broad-based growth across all segments and financial metrics. Importantly, the company offered an upbeat outlook for wafer fabrication equipment growth in 2026, driven by AI tailwinds. We believe that demand trends will continue, and combined with market share gains, we expect upward earnings revisions for the company.

In the second quarter, Applied Materials (AMAT) was the largest contributor to portfolio performance after reporting solid operating results with broad-based growth across all segments and financial metrics. Importantly, the company offered an upbeat outlook for wafer fabrication equipment growth in 2026, driven by AI tailwinds. We believe that demand trends will continue, and combined with market share gains, we expect upward earnings revisions for the company.