⁠Dimitry Nakhla | Babylon Capital®
A quality valuation analysis on $AMAT 🧘🏽‍♂️

•NTM P/E Ratio: 18.61x
•5-Year Mean: 17.93x

•NTM FCF Yield: 5.68%
•5-Year Mean: 5.79%

As you can see, $AMAT appears to be trading near fair value

Going forward, investors can receive ~4% LESS in earnings per share & ~2% LESS in FCF per share 🧠***

Before we get into valuation, let’s take a look at why $AMAT is a quality business

BALANCE SHEET✅
•Cash & Short-Term Inv: $8.21B
•Long-Term Debt: $5.46B

$AMAT has a great balance sheet, an A S&P Credit Rating, & 11x FFO Interest Coverage Ratio

RETURN ON CAPITAL✅
•2019: 24.9%
•2020: 27.4%
•2021: 40.0%
•2022: 43.2%
•2023: 34.2%
•2024: 30.7%

RETURN ON EQUITY✅
•2019: 35.9%
•2020: 38.5%
•2021: 51.6%
•2022: 53.4%
•2023: 48.0%
•2024: 40.6%

$AMAT has strong return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2014: $9.07B
•2024: $27.18B
•CAGR: 11.61%

FREE CASH FLOW✅
•2014: $1.56B
•2024: $7.49B
•CAGR: 16.98%

NORMALIZED EPS✅
•2014: $1.07
•2024: $8.65
•CAGR: 23.23%

SHARE BUYBACKS✅
•2014 Shares Outstanding: 1.23B
•LTM Shares Outstanding: 0.83B

By reducing its shares outstanding 32%, $AMAT increased its EPS by 47% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 47.7%
•LTM Operating Margins: 29.2%
•LTM Net Income Margins: 23.0%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~4% LESS in EPS & ~2% LESS in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $AMAT has to grow earnings at a 9.31% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be slightly less than the (9.31%) required growth rate:

2025E: $9.37 (8.3% YoY) *FY Oct
2026E: $10.14 (8.2% YoY)
2027E: $11.05 (9.0% YoY)

$AMAT has a decent track record of meeting analyst estimates ~2 years out, but let’s assume $AMAT ends 2027 with $11.05 in EPS & see its CAGR potential assuming different multiples

22x P/E: $243.10💵 … ~14.3% CAGR

20x P/E: $221.00💵 … ~10.2% CAGR

18x P/E: $198.90💵 … ~5.9% CAGR

16x P/E: $176.80💵 … ~1.5% CAGR

As you can see, $AMAT appears to have attractive return potential if we assume >20x earnings, a multiple well above its 10-year mean & on the higher end of its historical range

Of course demand for semiconductor equipment & materials is expected to see a huge increase over the next several years & this has gotten priced in, to an extent

So $AMAT could justify its current multiple if estimates continue to be fairly aggressive & the company executes (as they have over the last few quarters)

However, those looking to accumulate today leave themselves with no margin of safety — and we know how volatile semiconductors can be during times of uncertainty

Today at $174💵 $AMAT appears to be fully valued

I’d consider $AMAT a great opportunity closer to $150💵 or ~13% below today’s price .. where I can reasonably expect double-digit CAGR while assuming 17.50x earnings

#stocks #investing
___

𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢�[...]

�𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲.
tweet

⁠Startup Archive
Naval Ravikant on the “single-most important indicator of an entrepreneur’s success”

Naval admits it’s very difficult to predict which startups will work—only 1 out of 10 of his angel investments succeed—but he has noticed a common trait among many of the great companies:

“The founders are in it for the long haul. And the way you see that evidence very early on. They are extremely deliberate about all kinds of small decisions. Stuff you might think that doesn’t matter… And what you realize is is it’s their nature to obsess over these things because they feel like like they’re laying the bricks and the foundation of a skyscraper.”

He contrasts this to entrepreneurs are more careless early on:

“The people who are flippant about things… they’re often signaling to you that they’ll sell the company the first chance they get, or the moment that it looks like they’re gonna run out of cash, they’ll shut down.”

He continues:

“So I think that long-term mentality is probably the single-most important indicator of an entrepreneur’s success. But it’s by no means the only thing. It’s a very competitive environment. Most startups fail. And so you just gotta stick with it.”

Video source: @StartupGrind (2013)
tweet

⁠Investing visuals
Nebius $NBIS Q4 2024 👇

• Revenue of $38M (+466% YoY)
• EBITDA loss: ($76M)

Growth was primarily driven by +602% YoY growth in the core AI infrastructure business.

FY25 Outlook 🔭
Reaffirms that projected December 2025 ARR of $750M - $1000M is well within reach.
tweet

⁠Stock Analysis Compilation
Artisan International Value Strategy on UBS Group $UBSG SW

Thesis: UBS Group is a well-capitalized European banking leader, undervalued in the market despite strong growth potential after acquiring Credit Suisse.

(Extract from their Q4 letter) https://t.co/qdAcirlDpg
tweet

⁠Quiver Quantitative
Republican Representative Brian Fitzpatrick just implied that a bipartisan majority of Congress will act if the peace deal isn't fair to Ukraine.

"We will use every lever and every vote at our disposal, regardless of the personal or political consequences." https://t.co/EZaAlWDGnN
tweet

⁠Quiver Quantitative
Wow.

We posted this report last week.

Alibaba stock has now risen 44% since the trade.

Up another 13% today after releasing earnings. https://t.co/8FcJtXU2wm
tweet

⁠Startup Archive
RT @ShaneMac: Couldn’t agree with this more. I strive to create this environment for everything we build.

Naval Ravikant on the “single-most important indicator of an entrepreneur’s success”

Naval admits it’s very difficult to predict which startups will work—only 1 out of 10 of his angel investments succeed—but he has noticed a common trait among many of the great companies:

“The founders are in it for the long haul. And the way you see that evidence very early on. They are extremely deliberate about all kinds of small decisions. Stuff you might think that doesn’t matter… And what you realize is is it’s their nature to obsess over these things because they feel like like they’re laying the bricks and the foundation of a skyscraper.”

He contrasts this to entrepreneurs are more careless early on:

“The people who are flippant about things… they’re often signaling to you that they’ll sell the company the first chance they get, or the moment that it looks like they’re gonna run out of cash, they’ll shut down.”

He continues:

“So I think that long-term mentality is probably the single-most important indicator of an entrepreneur’s success. But it’s by no means the only thing. It’s a very competitive environment. Most startups fail. And so you just gotta stick with it.”

Video source: @StartupGrind (2013) - Startup Archive
tweet

⁠Investing visuals
A gently reminder on volatile days like today☺️ https://t.co/stZnzF4Ndb
tweet

⁠App Economy Insights
$BABA Alibaba Q3 FY25 (ending Dec.):

• Revenue +8% Y/Y to $38.4B ($0.1B beat).
• Operating margin 15% (+6pp Y/Y).
• Free cash flow margin 14% (-8pp Y/Y).
• Non-GAAP EPADS $2.93 ($0.27 beat). https://t.co/uxplfgKiSq
tweet

⁠Read
RT @The_AI_Investor: Elon Musk explaining the engineering challenges that xAI faced when scaling up their massive 200,000 (NVDA) GPU cluster.

And they will make it a 1m GPU cluster.

https://t.co/8AESIW2j3b
tweet