Critical Review: Applied Materials (NASDAQ:AMAT) & Lam Research (NASDAQ:LRCX)

Lam Research (NASDAQ:LRCX) and Applied Materials (NASDAQ:AMAT) are both large-cap computer and technology companies, but which is the better investment? We will compare the two companies based on the strength of their valuation, institutional ownership, profitability, earnings, dividends, risk and analyst recommendations.

Earnings & Valuation

This table compares Lam Research and Applied Materials”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Lam Research	$18.44 billion	21.25	$5.36 billion	$5.30	59.11
Applied Materials	$28.37 billion	14.82	$7.00 billion	$10.65	49.73

Applied Materials has higher revenue and earnings than Lam Research. Applied Materials is trading at a lower price-to-earnings ratio than Lam Research, indicating that it is currently the more affordable of the two stocks.

Volatility and Risk

Lam Research has a beta of 1.8, indicating that its share price is 80% more volatile than the S&P 500. Comparatively, Applied Materials has a beta of 1.57, indicating that its share price is 57% more volatile than the S&P 500.

Dividends

Lam Research pays an annual dividend of $1.04 per share and has a dividend yield of 0.3%. Applied Materials pays an annual dividend of $2.12 per share and has a dividend yield of 0.4%. Lam Research pays out 19.6% of its earnings in the form of a dividend. Applied Materials pays out 19.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Lam Research has increased its dividend for 10 consecutive years and Applied Materials has increased its dividend for 8 consecutive years.

Profitability

This table compares Lam Research and Applied Materials’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Lam Research	30.94%	66.21%	31.61%
Applied Materials	29.31%	36.97%	21.30%

Analyst Recommendations

This is a breakdown of recent recommendations and price targets for Lam Research and Applied Materials, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Lam Research	0	6	28	0	2.82
Applied Materials	0	6	27	1	2.85

Lam Research currently has a consensus target price of $358.67, indicating a potential upside of 14.48%. Applied Materials has a consensus target price of $593.84, indicating a potential upside of 12.12%. Given Lam Research’s higher probable upside, analysts clearly believe Lam Research is more favorable than Applied Materials.

Insider & Institutional Ownership

84.6% of Lam Research shares are owned by institutional investors. Comparatively, 80.6% of Applied Materials shares are owned by institutional investors. 0.3% of Lam Research shares are owned by insiders. Comparatively, 0.3% of Applied Materials shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Summary

Lam Research beats Applied Materials on 12 of the 18 factors compared between the two stocks.

About Lam Research

Lam Research Corporation designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits. The company offers ALTUS systems to deposit conformal films for tungsten metallization applications; SABRE electrochemical deposition products for copper interconnect transition that offers copper damascene manufacturing; SOLA ultraviolet thermal processing products for film treatments; and VECTOR plasma-enhanced CVD ALD products. It also provides SPEED gapfill high-density plasma chemical vapor deposition products; and Striker single-wafer atomic layer deposition products for dielectric film solutions. In addition, the company offers Flex for dielectric etch applications; Kiyo for conductor etch applications; Syndion for through-silicon via etch applications; and Versys metal products for metal etch processes. Further, it provides Coronus bevel clean products to enhance die yield; Da Vinci, DV-Prime, EOS, and SP series products to address various wafer cleaning applications; and Metryx mass metrology systems for high precision in-line mass measurement in semiconductor wafer manufacturing. The company sells its products and services to semiconductors industry in the United States, China, Europe, Japan, Korea, Southeast Asia, Taiwan, and internationally. The company was incorporated in 1980 and is headquartered in Fremont, California.

About Applied Materials

Applied Materials, Inc. engages in the provision of manufacturing equipment, services, and software to the semiconductor, display, and related industries. The company operates through three segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. The Semiconductor Systems segment develops, manufactures, and sells various manufacturing equipment that is used to fabricate semiconductor chips or integrated circuits. This segment also offers various technologies, including epitaxy, ion implantation, oxidation/nitridation, rapid thermal processing, physical vapor deposition, chemical vapor deposition, chemical mechanical planarization, electrochemical deposition, atomic layer deposition, etching, and selective deposition and removal, as well as metrology and inspection tools. The Applied Global Services segment provides integrated solutions to optimize equipment and fab performance and productivity comprising spares, upgrades, services, remanufactured earlier generation equipment, and factory automation software for semiconductor, display, and other products. The Display and Adjacent Markets segment offers products for manufacturing liquid crystal displays; organic light-emitting diodes; and other display technologies for TVs, monitors, laptops, personal computers, electronic tablets, smart phones, and other consumer-oriented devices. It operates in the United States, China, Korea, Taiwan, Japan, Southeast Asia, and Europe. The company was incorporated in 1967 and is headquartered in Santa Clara, California.