Technicians work on machinery at the Applied Materials facility in Santa Clara, California.

Applied Materials' profitability is near its peak and will not rise from current levels, according to Bank of America Merrill Lynch.

The firm lowered its rating to neutral from buy for the semiconductor capital equipment maker's shares, predicting Applied Materials will suffer from slower industry growth trends in the coming year.

"Following recent memory and foundry push-outs we lower our wafer fab equipment (WFE) outlook for this year," analyst Vivek Arya said in a note to clients Monday. Profit margins "are close to peak levels and are unlikely to move higher given concentrated customer base."

Wafer fab equipment enables chip manufacturers to turn silicon into a working semiconductor.

Applied Materials shares are down 1.1 percent Tuesday. Its stock is down 14 percent year to date through Monday versus the S&P 500's 8.4 percent gain.

The analyst lowered his price target to $49 from $65 for Applied Materials shares, representing 12 percent upside to Monday's close.

Arya reduced his 2019 forecast for the semiconductor wafer fab equipment industry sales to a 2.5 percent decline from a 2 percent gain. He cited the "muted growth environment" as a key reason for his downgrade of Applied Materials shares.

"We don't expect YoY growth to accelerate until at least 2H19," he said.

Applied Materials did not immediately respond to a request for comment.