Applied Materials (AMAT) is facing fresh headwinds after U.S. regulators expanded restrictions on exports to China. The company warned that the new rules could cut $710 million from its revenue over the next two years, adding another layer of uncertainty to a market already shaped by U.S.-China trade tensions.
Key Points
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New U.S. export rules are expected to reduce AMAT’s revenue by $110 million this quarter and $600 million in fiscal 2026.
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China accounts for nearly 30% of Applied Materials’ sales, making the company especially vulnerable.
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Despite regulatory setbacks, long-term demand for AI-related chip equipment remains a key growth driver.
What are the new export restrictions?
The U.S. Commerce Department’s Bureau of Industry and Security issued a new “Affiliates Rule” that expands existing export restrictions. Now, U.S. companies like Applied Materials need licenses not just to sell to blacklisted Chinese firms, but also to their majority-owned subsidiaries.
This move is designed to close loopholes and limit China’s ability to develop advanced semiconductor technology. However, it also makes it harder for U.S. chip-equipment makers to do business with some of their largest customers.
How much will the revenue hit hurt AMAT?
Applied Materials estimates the rule will reduce revenue by about $110 million in the current quarter and by $600 million in fiscal 2026. Put into perspective, that’s roughly 2% of the company’s expected 2026 sales.
While the near-term impact is manageable, analysts warn that China represents nearly a third of AMAT’s sales, so even small restrictions can ripple through earnings. Stifel projects a 10% quarter-on-quarter sales decline in Q4 due to reduced Chinese demand.
What does this mean for the semiconductor industry?
Applied Materials isn’t alone. Rivals like Lam Research (LRCX) and KLA (KLAC) are also exposed to China, though analysts expect their financial impact to be smaller. Dutch chip-equipment leader ASML is less affected, as its most advanced tools were already restricted.
The bigger question is whether these rules will accelerate China’s push for self-sufficiency in chipmaking. Domestic Chinese equipment players already hold 11–13% of the global market in certain areas, according to Rothschild & Co Redburn, and could gain share if U.S. suppliers are sidelined.
What it means for investors
For investors, the new rules add near-term volatility to AMAT stock. The shares fell nearly 3% after the announcement but remain up about 35% this year thanks to strong demand for AI-related chipmaking equipment.
Long-term, Applied Materials is still positioned to benefit from the AI and memory chip boom, but regulatory risks tied to U.S.-China relations could weigh on quarterly results. Pullbacks may present opportunities for long-term investors, while short-term traders should brace for choppier moves.
Conclusion
Applied Materials’ $710 million revenue warning highlights the ongoing tug-of-war between Washington and Beijing over advanced technology. While the hit is financially manageable, it underscores how geopolitical tensions can reshape the business outlook for even the strongest chip-equipment makers. For investors, balancing short-term risk with long-term AI-driven growth will be key.
FAQs
What are the new U.S. export rules affecting Applied Materials?
The Commerce Department expanded restrictions to cover not just blacklisted Chinese companies but also their majority-owned subsidiaries. U.S. firms now need licenses to export to these affiliates, closing a key loophole.
How much revenue will Applied Materials lose from these restrictions?
Applied Materials expects a $110 million hit in the fourth quarter and a $600 million reduction in fiscal 2026, totaling about $710 million. That equals around 2% of its projected 2026 sales.
Why is China so important to Applied Materials?
China accounts for nearly 30% of Applied Materials’ revenue. Restrictions on exports to Chinese firms pose a significant risk to earnings and sales momentum.
Will other semiconductor equipment companies be affected?
Yes, though the impact will vary. Lam Research and KLA are expected to take smaller hits, while ASML is largely unaffected as its advanced EUV tools were already restricted.
Is Applied Materials still a good investment despite these challenges?
Applied Materials remains well-positioned for long-term growth driven by AI and memory chip demand. However, investors should expect short-term volatility tied to U.S.-China policy shifts.
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