Applied Materials Stock – Morgan Stanley Raises Target, Primed for Narrative Shift

Applied Materials Inc. (NASDAQ:AMAT) faces a complex landscape as it navigates both promising opportunities and significant headwinds, setting the stage for a potential shift in market sentiment. Recent events, from analyst upgrades to revenue impacts from export restrictions and workforce reductions, have contributed to a dynamic environment for the semiconductor equipment giant.

AMAT's stock currently trades at $235, up 1% from the previous close and 43% YTD. This price action reflects the tug-of-war between positive catalysts and looming challenges. 

A key driver of potential narrative change is Morgan Stanley's recent upgrade. The firm raised its price target to $256 from $209, maintaining an Overweight rating. Morgan Stanley anticipates upcoming October quarter earnings as a potential catalyst, believing Applied Materials can “meaningfully shift the narrative around the stock” over the next six months.

This positive outlook is bolstered by the firm's assessment of Applied Materials' strong position in the DRAM sector, vital for computers and data centers, which led to an earlier upgrade on September 22, 2025, and an increased 2026 earnings per share forecast.

However, the company faces notable challenges. Expanded U.S. export restrictions to China are projected to result in a $600 million revenue reduction in fiscal 2026, with an additional $110 million impact expected in the fourth quarter of fiscal 2025. This announcement resulted in a 3% dip in AMAT's shares. Furthermore, Applied Materials is reducing its global workforce by approximately 4% (around 1,400 employees) to streamline operations in response to tightening export controls, incurring charges between $160 million and $180 million primarily in fiscal Q4 2025.

Despite these setbacks, Applied Materials continues to innovate. The launch of advanced chipmaking systems like Kinex, Centura Xtera, and PROVision 10 signifies the company's push into the “angstrom era” of chipmaking, targeting the intricate demands of 2nm-class and smaller node technologies. It is important to note that due to U.S. export restrictions, these systems will not be sold to Chinese manufacturers.

The company's strategic moves also include a 9% stake acquisition in BE Semiconductor Industries (Besi) in April 2025, aimed at strengthening collaboration in hybrid bonding technology. This technology is critical for advanced semiconductor packaging, enabling improved performance and reduced power consumption for AI applications.

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