Applied Materials Inc. (NASDAQ:AMAT)

Over the observed period, the financial performance, as measured by economic profit, demonstrates a generally positive trajectory with some fluctuations. Net operating profit after taxes (NOPAT) increased significantly from 2020 to 2021, continued to grow through 2022, experienced a slight decline in 2023, and then showed modest growth in 2024 before a substantial increase projected for 2025. Invested capital also exhibited a consistent upward trend throughout the period. The cost of capital remained relatively stable, fluctuating within a narrow range.

NOPAT Trend

NOPAT increased from US$3,885 million in 2020 to US$6,175 million in 2021, representing a substantial gain. Further growth was observed in 2022, reaching US$6,900 million. A slight decrease to US$6,533 million occurred in 2023, followed by a further modest decline to US$6,363 million in 2024. However, a significant increase to US$8,205 million is projected for 2025.

Cost of Capital

The cost of capital remained relatively consistent across the period, ranging from 22.88% to 23.89%. The lowest value was recorded in 2020 at 22.88%, while the highest was projected for 2025 at 23.89%. The fluctuations were minimal, suggesting a stable capital market environment for the company during this time.

Invested Capital Trend

Invested capital demonstrated a consistent upward trend, increasing from US$13,090 million in 2020 to US$14,717 million in 2021, US$14,890 million in 2022, US$17,777 million in 2023, US$18,913 million in 2024, and a projected US$20,121 million in 2025. This indicates ongoing investment in the business.

Economic Profit Trend

Economic profit followed a pattern of growth, decline, and projected growth. It increased from US$890 million in 2020 to US$2,715 million in 2021 and further to US$3,419 million in 2022. A decrease was observed in 2023, with economic profit falling to US$2,308 million, and again in 2024 to US$1,891 million. A substantial increase to US$3,398 million is projected for 2025, suggesting improved profitability relative to invested capital.

The projected increase in both NOPAT and economic profit for 2025, coupled with the continued growth in invested capital, suggests a positive outlook. However, the slight decline in economic profit in 2023 and 2024 warrants further investigation to understand the underlying factors contributing to this trend.

Net Income

Net income exhibited a generally strong upward trajectory from 2020 to 2024, increasing from 3,619 million US dollars in 2020 to a peak of 7,177 million US dollars in 2024. This represents a significant growth, more than doubling the net income over this four-year span. However, in 2025, a slight decline is observed where net income decreased to 6,998 million US dollars, indicating a minor contraction after consistent annual gains.

Net Operating Profit After Taxes (NOPAT)

NOPAT demonstrates a positive trend overall but with more variability compared to net income. It rose steadily from 3,885 million US dollars in 2020 to 6,900 million US dollars in 2022. Subsequently, there was a decrease in 2023 and 2024, with values of 6,533 million and 6,363 million US dollars respectively, suggesting some operational challenges or increased tax impacts during these years. In 2025, NOPAT sharply increased to 8,205 million US dollars, reaching the highest level in the examined period.

Comparative Insights

While both net income and NOPAT have grown over the long term, net income showed more consistent annual increases up to 2024 followed by a slight decrease, whereas NOPAT showed a dip in the middle years before a strong rebound in 2025. The sharp increase in NOPAT in the final year could indicate improved operational efficiency or tax benefits not reflected to the same degree in net income. The divergence in 2025 suggests potential differences in non-operating items, interest, or tax treatment affecting net income and operating profitability differently.

Overall Summary

Both profitability measures underscore an expanding profit base over the analyzed period, with net income nearly doubling and NOPAT more than doubling from 2020 to 2025. The trends reveal robust performance growth with a temporary moderation in operational profitability mid-period, followed by a strong operational recovery. The slight net income decline in the final year compared to NOPAT's peak requires further qualitative investigation but does not overshadow the overall positive performance trajectory.

The financial data reveals substantial fluctuations in the provision for income taxes and cash operating taxes over the six-year period. Both metrics exhibit upward trends overall, albeit with certain inconsistencies in year-to-year changes.

Provision for Income Taxes

The provision for income taxes amounts to $547 million in 2020 and increases significantly to $883 million in 2021, representing a rise of approximately 61%. This upward trend continues into 2022, reaching $1074 million. However, the value decreases to $860 million in 2023, indicating a notable reduction of around 20%. Subsequently, it rises again to $975 million in 2024 and peaks sharply at $2273 million in 2025, more than doubling from the previous year. This dramatic increase in 2025 suggests either substantially higher taxable income or changes in tax policies or accounting estimates affecting the tax provision.

Cash Operating Taxes

Cash operating taxes also show a general upward trajectory, starting at $530 million in 2020 and increasing steadily to $868 million in 2021 and $920 million in 2022. There is a pronounced increase to $1215 million in 2023, followed by a sharp rise to $1606 million in 2024. However, this trend reverses in 2025, with cash operating taxes decreasing to $1095 million. The decline in 2025 contrasts with the sharp increase in the provision for income taxes, which may imply timing differences, changes in tax payments structure, or adjustments related to deferred tax assets or liabilities.

Overall, the data points to increasing tax expenses and cash tax outflows over the analyzed period, with a notable divergence in the final year where the provision for income taxes rises substantially while cash operating taxes decline. This pattern may warrant further examination to understand underlying causes such as tax strategy changes, income fluctuations, or regulatory impacts.

The financial data reveals key trends in the company's capital structure and financial position over the examined periods. The analysis focuses on total reported debt and leases, stockholders’ equity, and invested capital, all expressed in millions of US dollars.

Total reported debt & leases

This metric has exhibited a steady upward trend across all periods. Beginning at 5,707 million in late 2020, it gradually increased each year, reaching 7,050 million by late 2025. The rate of increase suggests a consistent reliance on debt and lease obligations as part of financing, with a noticeable acceleration in the later years, especially between 2023 and 2025.

Stockholders’ equity

Stockholders’ equity has generally shown significant growth over the timeline. From 10,578 million in 2020, it increased modestly by 15.8% to 12,247 million in 2021 but slightly declined in 2022 to 12,194 million. After this dip, equity surged considerably to 16,349 million in 2023 and continued to rise, reaching 20,415 million by 2025. The sharp growth following 2022 may indicate increased profitability, retained earnings, or equity financing activities during that period.

Invested capital

Invested capital also shows a progressive increase, starting at 13,090 million in 2020 and growing to 20,121 million by 2025. The progression is generally smooth with the largest increments occurring in later years. This pattern aligns with the increases in both debt and equity, reflecting the overall expansion in the company’s capital base used for operations and growth.

Overall, the company demonstrates a pattern of expanding financial resources, both through increasing debt and growing equity. The balance between these components indicates a strategy of leveraging alongside strengthened equity, contributing to a larger invested capital base. The prominent rise in equity in recent years, paired with a steady increase in debt, points toward an improving financial position and potentially enhanced capability to fund strategic initiatives.

The economic spread ratio demonstrates a fluctuating pattern over the observed period. Initially, a substantial increase is noted, followed by a decline and subsequent recovery. Economic profit exhibits a similar trend of growth, decline, and then renewed growth, while invested capital consistently increases throughout the period.

Economic Spread Ratio - Overall Trend

The economic spread ratio began at 6.80% in 2020 and experienced significant growth, reaching a peak of 22.96% in 2022. A considerable decrease followed in 2023, with the ratio falling to 12.98%. The ratio then declined further to 10.00% in 2024 before recovering to 16.89% in 2025. This suggests periods of strong value creation followed by periods where value creation, relative to invested capital, diminished, and then a recent improvement.

Economic Profit and Invested Capital Relationship

Economic profit increased from US$890 million in 2020 to US$3,398 million in 2025, although not consistently. Invested capital also increased steadily over the same period, moving from US$13,090 million to US$20,121 million. The economic spread ratio’s fluctuations indicate that while economic profit generally increased, the rate of increase did not always outpace the growth in invested capital, leading to the observed variations in the ratio.

Peak and Trough Analysis

The peak economic spread ratio of 22.96% in 2022 coincided with a substantial economic profit of US$3,419 million and an invested capital of US$14,890 million. Conversely, the lowest ratio of 10.00% in 2024 occurred alongside an economic profit of US$1,891 million and the highest invested capital figure of US$18,913 million. This highlights the impact of both absolute profit levels and the scale of investment on the economic spread ratio.

The recent increase in the economic spread ratio in 2025 suggests a potential improvement in the efficiency of capital allocation and a strengthening of value creation relative to investment. Continued monitoring of these trends will be important to assess the sustainability of this improvement.

The economic profit margin exhibited a generally increasing trend from 2020 to 2022, followed by a decline in 2023 and 2024, and a subsequent recovery in 2025. This movement correlates with fluctuations in economic profit and net revenue over the same period.

Economic Profit Margin Trend

In 2020, the economic profit margin stood at 5.18%. This figure more than doubled to 11.77% in 2021, and continued to rise, reaching a peak of 13.26% in 2022. A notable decrease was observed in 2023, with the margin falling to 8.70%. This downward trend persisted into 2024, with the margin further declining to 6.96%. However, the margin rebounded strongly in 2025, increasing to 11.98%, nearly matching the level achieved in 2021.

Relationship to Economic Profit

The economic profit margin’s trajectory closely mirrors that of economic profit. The substantial increases in economic profit from 2020 to 2022 (from US$890 million to US$3,419 million) directly contributed to the rising margin. The subsequent decline in economic profit in 2023 and 2024 (to US$2,308 million and US$1,891 million respectively) corresponded with the margin’s decrease. The recovery in economic profit to US$3,398 million in 2025 drove the margin’s resurgence.

Relationship to Net Revenue

Net revenue consistently increased throughout the period, moving from US$17,202 million in 2020 to US$28,368 million in 2025. However, the economic profit margin did not increase proportionally with revenue. While revenue growth contributed to higher economic profit, the margin’s fluctuations suggest that changes in profitability, relative to revenue, were a significant factor. The margin’s peak in 2022 occurred despite continued revenue growth, indicating improved efficiency or cost management during that year. The declines in 2023 and 2024, despite further revenue increases, suggest a decrease in profitability relative to sales.

Overall, the economic profit margin demonstrates a dynamic relationship with both economic profit and net revenue. While revenue growth is evident, the margin’s performance highlights the importance of maintaining profitability to maximize economic value creation.