Applied Materials (NASDAQ:AMAT) is anticipated to release its Q2 FY’25 earnings in the coming weeks. According to consensus estimates, revenues are expected to rise by approximately 7% year-over-year to $7.12 billion, while earnings are forecasted to be around $2.31 per share, an increase from about $2.09 during the same period last year. Several trends will contribute to earnings growth. Applied Materials is likely to maintain a higher ratio of advanced equipment, fueled by applications like generative AI and the transition to more sophisticated processing technologies. The surge in AI is boosting semiconductor demand due to the growing need for greater computational power, increased memory capacity, and more intricate chips. Nonetheless, the company cautioned in February that U.S. government restrictions on selling cutting-edge chipmaking equipment to Chinese firms might slightly dampen growth for the quarter.
The company boasts a current market capitalization of $122 billion. Over the past twelve months, its revenue was $27.2 billion, with net profits reported at $7.2 billion. Therefore, if you are looking for potential gains with reduced volatility compared to individual stocks, the Trefis High Quality portfolio offers an alternative, having outperformed the S&P 500 and achieved returns exceeding 91% since its inception.
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Positive Post-Earnings Return Odds for Applied Materials
Here are some insights regarding one-day (1D) post-earnings returns:
- In the past five years, 19 earnings data points have been noted, showing 7 positive and 12 negative one-day (1D) returns. In summary, positive 1D returns occurred approximately 37% of the time.
- However, this percentage drops to 36% when examining data from the last 3 years instead of 5.
- The median of the 7 positive returns is 3.9%, while the median of the 12 negative returns is -3.6%
Additional data for observed 5-Day (5D) and 21-Day (21D) returns following earnings are summarized along with the statistics in the table below.
Correlation Among 1D, 5D, and 21D Historical Returns
A relatively lower-risk strategy (though not effective if the correlation is weak) is to analyze the correlation between short-term and medium-term returns following earnings, identify a pair that exhibits the strongest correlation, and execute the suitable trade. For instance, if 1D and 5D demonstrate the highest correlation, a trader might position themselves “long” for the next 5 days if the 1D post-earnings return is positive. Below is some correlation data based on a 5-year and 3-year (more recent) history. Note that the correlation 1D_5D indicates the correlation between 1D post-earnings returns and the subsequent 5D returns.
Is There Any Correlation With Peer Earnings?
Occasionally, the performance of peers may impact the stock reaction following earnings. In fact, the price adjustment might start before the earnings are reported. Below is some historical data on the post-earnings performance of Applied Materials stock compared with the stock performance of peers that reported earnings just prior to Applied Materials. For a fair comparison, peer stock returns also show post-earnings one-day (1D) returns.
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