Why is Applied Materials stock rallying today?

Applied Materials' stock saw a 3.8% increase in early trading as investors responded positively to a Morgan Stanley analyst note. The note lowered the price target to $563, but it also increased 2027 revenue and earnings per share forecasts, indicating the bank's long-term confidence in the company's earnings potential, even if the valuation multiple has been reduced.

Morgan Stanley cut its valuation multiple from 26x to 22x due to concerns that near-term positives are already priced into the share. However, the upward revision to 2027 estimates provided investors with a reason to buy into the dip. The stock's distance from its 52-week high of $739.67 may have also attracted buyers who see the current price as an opportunity.

Applied Materials reported record fiscal third-quarter performance, with revenue of $9.12 billion, up about 25% year-over-year, and a record non-GAAP EPS of $3.50, up 41%. Management announced fourth-quarter guidance of about $10.25 billion in revenue and raised its full-year Semiconductor Systems growth outlook to over 30%. The NASDAQ rose slightly (+0.2%) on Monday, which provided a minor tailwind for technology stocks.

The S&P 500 and Dow Jones were essentially flat, making today's move in Applied Materials primarily stock-specific. Investors were driven by a mixed-but-ultimately-constructive analyst note, record quarterly results, and a supportive AI-driven sector narrative, even though the stock remains below its yearly peak.