Applied Materials (AMAT) delivered stronger-than-expected results for its July quarter, but the celebration ended quickly.
The chip equipment maker reported adjusted earnings of $2.48 per share, topping analyst forecasts of $2.36, and revenue of $7.3 billion, slightly above the $7.22 billion consensus. Sales rose nearly 8% from a year earlier, with all three business segments exceeding expectations. Semiconductor Systems revenue climbed 10% to $5.43 billion, buoyed by foundry-logic investments and solid DRAM demand, while Applied Global Services grew 1% to $1.6 billion.
Yet, the optimism was cut short by a sharp downgrade in the company’s guidance for the October quarter. Management now expects revenue of about $6.7 billion at the midpoint, well below Wall Street’s $7.33 billion forecast, and adjusted EPS between $1.91 and $2.31. The announcement sent Applied shares tumbling more than 13% on Friday, marking their steepest one-day drop in over five years.
China Slowdown and Export License Delays
CEO Gary Dickerson pointed to three key headwinds: a slowdown in Chinese spending as customers digest earlier purchases, a backlog of export licenses unlikely to be cleared this quarter, and uneven demand from leading-edge customers due to market concentration and fab timing. China’s share of Applied’s revenue is projected to fall to 29% in Q4 from 35% in Q3.
This shift marks a notable change from earlier expectations of steady growth in leading-edge demand into 2025 and 2026. “It just creates a level of uncertainty,” Dickerson said, noting that trade and tariff concerns are causing customers to delay capital commitments. The caution mirrors recent commentary from Dutch rival ASML (ASML), which also cited hesitant chipmakers amid geopolitical and policy volatility.
Ripple Effect Across the Sector
The weak outlook rattled the broader semiconductor equipment sector. Shares of Lam Research and KLA each fell more than 7%, and ASML slipped about 1%. Analysts at Bank of America, Summit Insights, and DZ Bank downgraded Applied following the guidance cut. BofA’s Vivek Arya lowered his price target to $180 from $190, arguing that Applied’s product mix is more exposed to sluggish segments compared to peers with stronger positions in high-growth etch and deposition tools.
Despite the near-term caution, Applied remains positioned for long-term growth tied to artificial intelligence, robotics, and the industry’s shift from FinFET to gate-all-around transistors—technology transitions that could lift revenue per fabrication plant by roughly 30%. The company also highlighted a $200 million investment in an Arizona facility as part of Apple’s (AAPL) American Manufacturing Program, reinforcing its role in U.S. semiconductor expansion.
Conclusion
Applied Materials finds itself in a paradox—delivering record quarterly results while facing a clouded near-term outlook. Investor anxiety over China’s slowdown, export hurdles, and softer leading-edge demand has overshadowed the company’s strong execution and cash flow generation. With the semiconductor capital equipment sector trading as a proxy for future chip demand, markets appear unwilling to look past the next few months. For now, investors are in wait-and-see mode, even as the company’s long-term growth story remains intact.
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