We recently compiled a list of the 8 Most Profitable Large Cap Stocks to Invest In. In this article, we'll take a look at where Applied Materials Inc. (NASDAQ:AMAT) stands compared to the other profitable large-cap stocks.

US stocks rise as economic outlook brightens

In the second half of 2024, financial markets will operate in a complex environment characterized by volatility and cautious optimism. Recent reports suggest that the US economy has proven resilient, with growth rates remaining solid despite concerns about inflation and a possible recession. Analysts at JPMorgan Asset Management emphasize that the US economy has shown strong momentum in recent months, driven by robust consumer spending. Analysts believe the likelihood of a recession triggered by internal factors remains low as there are few overshoots in cyclical sectors. Moderate consumer spending is expected to support steady growth into 2025. However, given the upcoming US elections, shifting monetary policy and ongoing geopolitical tensions, there are external risks that could impact this expansion.

On October 9, 2024, U.S. stocks rose for the second consecutive day, with the S&P 500 and the Dow Jones Industrial Average closing at record highs. The S&P 500 rose 0.71% to close at 5,792.04, while the Nasdaq Composite gained 0.6% to close at 18,291.62. The Dow rose 431.63 points, or 1.03%, to close at 42,512.00, setting a record close. Technology stocks led the rally, reflecting strong investor sentiment despite ongoing geopolitical concerns.

The market's positive momentum followed the release of minutes from the Federal Reserve's September meeting, which showed that many participants favored a larger rate cut. Mike Bailey, director of research at FBB Capital Partners, noted that the Fed's actions were a key driver of market performance.

Overall, Wall Street is showing resilience, supported by optimism about the Fed's ability to handle a soft landing in the economy, especially after September's jobs report showed strong growth in the labor market.

In a recent interview on CNBC's “Closing Bell,” Malcolm Ethridge, managing partner of Capital Area Planning Group, shared his insights on the current state of the market, particularly as it relates to mega-cap stocks and the impact of artificial intelligence (AI). Ethridge emphasized that the ongoing bull market, which has seen a remarkable 60% increase over the past two years, is likely to continue, largely due to advances in AI technology. He noted that AI has shown significant staying power, with companies like Microsoft and NVIDIA leading the way. Ethridge asked an interesting question: Which stock will emerge as the next big player in the ongoing AI arms race?

Ethridge noted that mega-cap companies do not rely heavily on borrowing for growth. As the Federal Reserve begins to cut interest rates, he believes this will enable more companies to issue debt or borrow and invest in AI, potentially leading to further market expansion. However, he warned that historical norms may not apply in this unique economic environment shaped by the COVID-19 pandemic. Overall, Ethridge remains optimistic that mega-cap stocks will be the frontrunners.

methodology

To compile our list of the 8 most profitable large-cap stocks to invest in, we used stock screeners from Finviz and Yahoo Finance. First, we defined large-cap stocks as those with a market capitalization between $20 billion and $200 billion. Next, we focused on profitability by filtering out stocks that had an estimated 5-year EPS growth rate above 10%. We sorted our results by market cap and selected the top 20 stocks.

From this initial list of 20 profitable large-cap stocks, we further narrowed our selection to stocks that had positive net income (TTM) after twelve months and stocks that had positive net income growth over the past five years. To ensure the reliability of our results, we consulted reputable sources such as SeekingAlpha, which provided insights into the compound annual growth rate (CAGR) of net income over the past five years, and Macrotrends, which provided information on TTM net income.

From this list of large-cap stocks that met our criteria, we finally focused on the eight stocks that are most popular among institutional investors. Data on hedge fund sentiment around each stock comes from Insider Monkey's database of 912 elite hedge funds. The 8 most profitable large-cap stocks to invest in are listed below in ascending order based on the number of hedge funds that own shares in them in the second quarter of 2024.

Why do we care what hedge funds do? The reason is simple: Our research shows that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, outperforming the benchmark by 150 percentage points (Further details can be found here).

A technician in a clean room assembling a semiconductor chip using a microscope.

Applied Materials Inc. (NASDAQ:AMAT)

TTM net income: $7.45 billion

5-Year Net Income CAGR: 21.92%

Number of hedge fund owners: 77

Applied Materials Inc. (NASDAQ:AMAT) is an American company specializing in materials engineering solutions essential to the manufacturing of semiconductor chips and advanced displays. As one of the largest suppliers of semiconductor equipment in the world, the company offers a range of products and services that support the production of electronics, flat panel displays and solar products and play a critical role in the technology industry.

The company is at the forefront of advancing semiconductor technology and focuses on energy-efficient computing to meet the growing demands of artificial intelligence (AI) and other emerging technologies. The company is expanding its product offering by integrating materials engineering solutions that are critical to improving chip performance. This includes innovations in advanced logic, high-performance DRAM and high-bandwidth memory, all designed to meet the increasing need for energy-efficient chips in data centers and other applications.

Applied Materials Inc. (NASDAQ:AMAT) seeks to expand its collaboration to stay ahead of the evolving device architecture landscape, increase success rates and improve investment efficiency. To support its partnerships, Applied Materials plans to develop its global EPIC platform over the next few years. This platform is designed to promote rapid innovation and help bring next-generation technologies to market faster. With a strong market position and a commitment to research and development, the company is well positioned to capitalize on the multi-trillion dollar opportunities presented by AI, IoT, robotics, electric and autonomous vehicles, and clean energy.

Applied Materials Inc. (NASDAQ:AMAT) recently reported impressive third-quarter 2024 results, posting record revenue of $6.78 billion, up 5% from the same period last year. Strong demand for its innovative products and services, particularly in the AI ​​area, has positioned the company for further growth in the semiconductor market.

In addition to robust sales, the company generated $2.39 billion in cash from operations and returned $1.19 billion to shareholders through dividends and stock repurchases. CEO Gary Dickerson emphasized that the ongoing race for AI leadership is driving demand for its unique offerings and setting the stage for Applied to outperform its competitors in the long term.

Over the past five years, Applied Materials Inc. (NASDAQ:AMAT) has grown its revenue at a compound annual growth rate (CAGR) of 12.94%, while its net income grew at a compound annual growth rate (CAGR) of 21.92% during the same period has increased.

Analysts are also bullish on AMAT. Analysts currently have a consensus Buy rating on the stock, and the average 1-year analyst price target of $232.50 suggests a potential upside of 13.38% from current levels.

According to Insider Monkey's database, Applied Materials Inc. (NASDAQ:AMAT) was held by 77 hedge funds in the second quarter of 2024. Parnassus Investments stated the following about Applied Materials Inc. (NASDAQ:AMAT) in its second quarter 2024 investor letter:

Overall AMAT takes 7th place on our list of the most profitable large-cap stocks to invest in. While we recognize AMAT's potential as an investment, we believe AI stocks are more promising for generating higher returns, and within a shorter time frame. If you're looking for an AI stock that has more promise than AMAT but trades at less than 5x earnings, check out our report on it cheapest AI stock.

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Disclosure: None. This article was originally published on Insider Monkey.