Applied Materials (NASDAQ:AMAT) versus Broadcom (NASDAQ:AVGO) Critical Comparison

Applied Materials (NASDAQ:AMAT) and Broadcom (NASDAQ:AVGO) are both large-cap computer and technology companies, but which is the superior business? We will contrast the two companies based on the strength of their earnings, profitability, risk, analyst recommendations, dividends, institutional ownership and valuation.

Profitability

This table compares Applied Materials and Broadcom’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Applied Materials	29.31%	36.97%	21.30%
Broadcom	36.57%	38.61%	17.49%

Earnings & Valuation

This table compares Applied Materials and Broadcom”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Applied Materials	$28.37 billion	12.60	$7.00 billion	$10.65	42.26
Broadcom	$63.89 billion	33.11	$23.13 billion	$5.12	87.26

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

Risk and Volatility

Applied Materials has a beta of 1.66, indicating that its stock price is 66% more volatile than the S&P 500. Comparatively, Broadcom has a beta of 1.43, indicating that its stock price is 43% more volatile than the S&P 500.

Dividends

Applied Materials pays an annual dividend of $2.12 per share and has a dividend yield of 0.5%. Broadcom pays an annual dividend of $2.60 per share and has a dividend yield of 0.6%. Applied Materials pays out 19.9% of its earnings in the form of a dividend. Broadcom pays out 50.8% 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. Applied Materials has raised its dividend for 8 consecutive years and Broadcom has raised its dividend for 15 consecutive years. Broadcom is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Institutional & Insider Ownership

80.6% of Applied Materials shares are owned by institutional investors. Comparatively, 76.4% of Broadcom shares are owned by institutional investors. 0.3% of Applied Materials shares are owned by company insiders. Comparatively, 1.9% of Broadcom shares are owned by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company will outperform the market over the long term.

Analyst Recommendations

This is a summary of current ratings and recommmendations for Applied Materials and Broadcom, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Applied Materials	0	8	27	0	2.77
Broadcom	0	4	27	1	2.91

Applied Materials currently has a consensus target price of $470.13, suggesting a potential upside of 4.46%. Broadcom has a consensus target price of $454.55, suggesting a potential upside of 1.74%. Given Applied Materials’ higher possible upside, equities research analysts plainly believe Applied Materials is more favorable than Broadcom.

Summary

Broadcom beats Applied Materials on 11 of the 17 factors compared between the two stocks.

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.

About Broadcom

Broadcom Inc. designs, develops, and supplies various semiconductor devices with a focus on complex digital and mixed signal complementary metal oxide semiconductor based devices and analog III-V based products worldwide. The company operates in two segments, Semiconductor Solutions and Infrastructure Software. It provides set-top box system-on-chips (SoCs); cable, digital subscriber line, and passive optical networking central office/consumer premise equipment SoCs; wireless local area network access point SoCs; Ethernet switching and routing custom silicon solutions; serializer/deserializer application specific integrated circuits; optical and copper, and physical layer devices; and fiber optic components and RF semiconductor devices. The company also offers RF front end modules and filter; Wi-Fi, Bluetooth, and global positioning system/global navigation satellite system SoCs; custom touch controllers; inductive charging; attached small computer system interface, and redundant array of independent disks controllers and adapters; peripheral component interconnect express; fiber channel host bus adapters; read channel based SoCs; custom flash controllers; preamplifiers; optocouplers, industrial fiber optics, and motion control encoders and subsystems; light emitting diode, ethernet PHYs, switch ICs, and camera microcontrollers. Its products are used in various applications, including enterprise and data center networking, home connectivity, set-top boxes, broadband access, telecommunication equipment, smartphones and base stations, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays. Broadcom Inc. was founded in 1961 and is headquartered in Palo Alto, California.