Deutsche Bank attributes Applied Materials' disappointing guidance to a reversal in China spending.

Applied Materials' disappointing guidance is driven by a reversal in China spending, according to Deutsche Bank. The company specializes in equipment for producing integrated circuits and semi-conductor components, with net sales primarily from the semiconductor industry. Net sales are distributed geographically, with the majority coming from China, followed by the US, Korea, Taiwan, Japan, Asia, and Europe.

Applied Materials (AMAT.O) shares slid nearly 15% in premarket trading on Friday, August 15, following the company's issuance of a disappointing sales and profit forecast. The semiconductor equipment maker cited slowing demand in China and growing tariff-related risks as the primary factors contributing to the weak outlook [1].

China, which accounts for 35% of Applied Materials' revenue in the July quarter, has emerged as a significant risk for chipmaking tool suppliers due to U.S. export restrictions [2]. The company's CEO, Gary Dickerson, flagged lower visibility and increased uncertainty in the near term during a post-earnings call, attributing the challenges to the dynamic policy environment [1].

The company expects revenue of $6.70 billion for the fourth quarter, compared to analysts' average estimate of $7.33 billion, and its projected profit also came in below estimates [1]. If current losses hold, the company is set to lose more than $22 billion of its $151.06 billion market value as of Thursday's close.

J.P.Morgan analyst Harlan Sur noted that the slowdown in China demand and erratic orders from major foundry customers are "more a reflection of timing of spending rather than structural issues" [1]. Despite the near-term challenges, the company remains confident in medium- to long-term growth, particularly from artificial intelligence, advanced process technologies, and DRAM demand [2].

Analysts see mixed short-term prospects for Applied Materials. While JP Morgan rates the stock "overweight" with a $220 price target, other analysts point to potential product mix challenges and near-term uncertainties [2]. However, Morningstar maintains a $196 fair value estimate, citing the company's strong position to capitalize on AI-driven demand over the medium term despite near-term challenges [2].

References:
[1] https://www.reuters.com/world/china/applied-materials-shares-sink-weak-china-demand-tariff-uncertainty-2025-08-15/
[2] https://invezz.com/news/2025/08/15/applied-materials-falls-14-on-weak-forecast-china-woes-long-term-upside-seen/