Jim Cramer Outlines His Playbook for Buying Applied Materials (AMAT)

AMAT +4.31%

On September 1, a caller to CNBC's Mad Money explained that they had purchased Applied Materials, Inc. (NASDAQ: AMAT) shares in July at $540 ahead of the earnings announcement, and then again at $490. In response, host Jim Cramer offered the following guidance:

"But you know what? We don't care where we bought it; we care where it's going to. Now, this stock is now down 300 bucks from its high. I think if you did initiate a position now, I don't know when you're going to do it, you buy a little here. I know you already have some. Forget that you already have some. Think about how to be able to make it so you have a better basis. I would put some on here and then wait till it's down 10%. It could happen. This is a volatile market."

Powering the Backbone of Microchip Production

Applied Materials, Inc. (NASDAQ: AMAT) occupies a significant spot in the global technology ecosystem by providing the manufacturing equipment needed to build advanced logic and memory chips. Semiconductor foundries rely heavily on its deposition, etch, and inspection systems to execute multi-layered chip architectures. That technical footprint makes the company a major beneficiary of long-term infrastructure upgrades across the industry, and its manufacturing tools remain central to physical chip fabrication. The company is one of a small group of major semiconductor equipment suppliers — alongside firms such as ASML, Lam Research, and KLA — whose tools sit upstream of every advanced chip built, which is why fab capital-spending cycles, rather than end demand alone, tend to drive its results.

Cyclical Headwinds and Valuation

Even with advanced technology driving the AI hardware wave, semiconductor capital equipment remains a highly cyclical business. When macro conditions shift or fab spending pauses, equipment makers can experience sharp corrections after running up too fast. While long-term demand for advanced packaging and microchip manufacturing tools appears strong, an unexpected slowdown in customer orders or tighter export constraints could quickly deflate elevated valuations and leave late buyers holding shares through painful pullbacks. Export policy is a live variable for the group: U.S. restrictions on selling advanced chipmaking tools to China have repeatedly affected equipment makers' addressable sales, making regulatory headlines a recurring swing factor for the sector.

Institutional Ownership and Market Sentiment

According to Insider Monkey's database, which tracks more than 1,000 elite hedge funds, 137 funds held positions in the company during the second quarter, down slightly from 138 in the prior quarter — a sign of steady institutional participation. Among those hedge funds, Coatue Management held the most prominent position, with over 4.2 million shares. Short interest stands at 1.50% of the float, indicating limited bearish positioning.

That institutional backing underscores the company's fundamental strength, though the recent pullback illustrates how quickly volatility can test an investor's patience. Taken together, Cramer's approach offers a practical framework: let go of past entry prices, pick up a small slice at current levels, and keep cash on the sidelines in case the stock drops another ten percent — the kind of staged-entry discipline that is designed for cyclical stocks whose prices routinely overshoot in both directions.

Source: Yahoo Finance