Tokyo Electron Sets the Table as We Consider Buying More of This Holding
Here’s our plan for the shares and our thinking if a short squeeze emerges.
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Ahead of Applied Materials AMAT delivering its quarterly results after Thursday’s market close, Tokyo Electron TOELY reported that its September quarter revenue rose more than 32% compared to year-ago levels and 2% compared to its June quarter.
Helping fuel that continued year-over-year strength as well as Tokyo Electron’s upside fiscal 2025 revenue guidance for 2.4 trillion yen, up from its prior forecast of 2.3 trillion yen, is strong demand for AI servers and AI PCs as well as smartphones. What stood out to us was the stronger revenue expectation for Electron’s second half of the fiscal year (the December 2024 to March 2025 quarters), which was up almost 11% compared to a prior forecast of +9% for the second half of the year.
That was a nice update ahead of Applied’s earnings report and following the one from Lam Research LRCX a few weeks ago that also called out how AI demand was driving semi-cap equipment demand. Around that time, Taiwan Semi TSM signaled its 2024 capital spending would top $30 billion, which implies a meaningful tick-up in the December quarter given it already spent more than $18 billion during the first nine months of 2024. As we think about that, let’s remember that TSM, according to Applied’s SEC filings, is a “meaningful customer” and accounts for about 20% of its revenue.
With AI investment spending across Big Tech rising and AI adoption rising, as should AI PC, smartphone and other connected devices, the outlook for chip demand remains favorable enough that the odds of it resulting in strained capacity levels are high. In the coming months, we could also see a flurry of CHIPs Act agreements being inked as the Biden administration looks to cement one of its signature initiatives before the Trump administration takes office.
All of this keeps us bullish on AMAT shares and, if we like what we hear on Thursday night, we have room to snag some additional shares if the price is right.
Following what we saw with the shares of Dutch Bros BROS and Axon AXON last week, we note the short interest on AMAT shares per the latest figures from Nasdaq was 16.7 million shares. That equates to 2.59 days to cover. Should we see a repeat of the short squeezes from last week and their magnitude, we will take a more measured approach to harvesting some AMAT gains. It would be the prudent thing to do.
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At the time of publication, TheStreet Pro Portfolio was long AMAT and BROS.
