Applied Materials, Inc.AMATNASDAQ

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $251.07 per share(market-calibrated)

-32.5%

Upside to Fair Value

Current

$372.18

Pure Model

$210.70

Fair Value

$251.07

Bull Case

$266.68

Bear Case

$158.96

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

Unreachable

Calibrated Growth

75/25 blend

Market price implies assumptions beyond model range. Fair value blends 75% model / 25% market price.

What's Driving This Ratingfor AMAT

✓

CapEx already efficient

CapEx at 4.24% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 37.05% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

↑

Strong near-term revenue growth

Analyst consensus projects 10.52% revenue growth in Year 1, fading to 3.75% by Year 5 and 3.75% by Year 10. Revenue reaches $49.8B by Year 10 (vs $28.4B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $133.16/share (12.8x terminal FCF) while exit multiple gives $288.23/share (44.1x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.

⚠

Market price exceeds model's maximum

Even with the most optimistic terminal growth the model allows, it can't reach $372.18. The market is pricing in factors beyond the DCF framework — possibly optionality, brand premium, or expectations of margin/growth inflection not yet in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 63.51% indicates efficient cash generation. FCF reaches $12.2B by Year 10 (24.51% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.68

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)12.05%

Cost of Debt

Pre-tax Cost of Debt3.46%

Tax Rate24.52%

After-tax Cost of Debt2.61%

Equity Weight (E/V)97.70%

Debt Weight (D/V)2.30%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (97.70% × 12.05%) + (2.30% × 2.61%)

= 11.83%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$31.4B	$40.9B	$41.4B	$44.6B	$49.8B
EBIT	$11.6B	$15.2B	$15.4B	$16.5B	$18.5B
Tax	$2.8B	$3.7B	$3.8B	$4.1B	$4.5B
NOPAT	$8.8B	$11.4B	$11.6B	$12.5B	$13.9B
+ Depreciation	$482M	$629M	$637M	$685M	$765M
- Capex	$1.3B	$1.7B	$1.8B	$1.9B	$2.1B
- Δ NWC	$626M	$735M	$314M	$338M	$378M
Free Cash Flow	$7.3B	$9.6B	$10.2B	$10.9B	$12.2B
Discount Factor	0.894	0.715	0.572	0.457	0.327
Present Value	$6.5B	$6.9B	$5.8B	$5.0B	$4.0B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$12.2B

Terminal Growth Rate3.75%

WACC11.83%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$156.7B

PV of Terminal Value$51.2B

Exit Multiple Method

Year 10 EBITDA$19.2B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$538.1B

PV of Terminal Value$175.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$55.6B

PV of Terminal Value$51.2B

Enterprise Value$106.9B

(-) Net Debt-$191M

Equity Value$107.1B

Shares Outstanding804M

Price per Share$133.16

Exit Multiple Method

PV of Projected FCFs$55.6B

PV of Terminal Value$175.9B

Enterprise Value$231.5B

(-) Net Debt-$191M

Equity Value$231.7B

Shares Outstanding804M

Price per Share$288.23

Pure Model Fair Value

$210.70

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
9.83%	$250.25	$253.75	$257.83	$262.64	$268.40
10.83%	$226.84	$229.30	$232.10	$235.33	$239.09
11.83%	$206.91	$208.69	$210.70	$212.96	$215.55
12.83%	$189.66	$190.98	$192.46	$194.10	$195.95
13.83%	$174.53	$175.54	$176.65	$177.88	$179.24

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$158.96

-57.3% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 2.10

Base Case

$210.70

-43.4% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.68

Bull Case

$266.68

-28.3% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 1.43

Key Assumptions & Drivers• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth10.52%

Year 3 Revenue Growth9.36%

Year 5 Revenue Growth3.75%

Year 7 Revenue Growth3.75%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin37.05%

Tax Rate24.52%

Historical Capex / Rev4.24%

NWC / Revenue20.99%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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