AMAT Plunges 4% Amid Tech Rotation and Defense Surge – Is This a Buying Opportunity?

Summary
• Applied Materials (AMAT) trades at $280.49, down 4.01% intraday after opening at $290.70
• Intraday range spans $279.45 to $291.915, with 52-week high at $298.22 and low at $123.74
• Sector peers like Lam Research (LRCX) also underperform, down 1.55% as tech rotation intensifies

Applied Materials faces a sharp intraday selloff amid a broader market shift out of high-growth tech stocks and into defense and industrial sectors. The move follows President Trump’s $1.5 trillion defense budget proposal, which has redirected capital flows. With AMAT trading near key support levels and options volatility surging, traders are weighing short-term catalysts against long-term AI-driven demand for semiconductor equipment.

Tech Rotation and Defense Surge Drive AMAT's Sharp Decline
The 4.01% intraday drop in AMAT reflects a broader market rotation out of AI-driven tech stocks and into defense and energy sectors. Traders are locking in profits after a recent rally in semiconductor equipment firms, while President Trump’s proposed 2027 defense budget has boosted defense contractors like Lockheed Martin (+8%). This shift is amplified by rising memory chip prices and tightening global supply chains, which have dampened near-term demand for capital-intensive manufacturing tools. AMAT’s exposure to AI-driven capex cycles makes it particularly sensitive to such rotations.

Semiconductor Equipment Sector Under Pressure as LRCX Slides 1.55%
The Semiconductor Equipment sector is broadly underperforming, with Lam Research (LRCX) down 1.55% and KLA Corporation (KLAC) falling 2.8%. AMAT’s 4.01% decline outpaces peers, reflecting its larger exposure to AI-driven capex and recent analyst downgrades. While the sector’s 30-day moving average (262.77) remains above current levels, the 200-day average (194.09) suggests long-term bullish momentum. However, near-term weakness is being exacerbated by profit-taking and geopolitical uncertainties.

Options and ETF Playbook: Capitalizing on AMAT’s Volatility
• MACD: 9.34 (above signal line 6.68), RSI: 72.47 (overbought), Bollinger Bands: 290.65 (upper), 265.66 (middle), 240.68 (lower)
• 200-day MA: 194.09 (below current price), 30-day MA: 262.77 (below current price)

Technical indicators suggest AMAT is overbought but faces near-term support at the 200-day MA (194.09) and 30-day MA (262.77). A break below $270 would trigger a test of the 200-day MA, with potential for a rebound if buyers emerge at key levels. The 2026-01-16 options chain offers high-leverage contracts for directional bets:

• AMAT20260116P270 (Put, $270 strike, 1/16/2026):
- IV: 44.28% (moderate), Leverage: 85.15%, Delta: -0.267, Theta: -0.047, Gamma: 0.0168, Turnover: 60,243
- Payoff at 5% downside (266.46): $6.46 per contract. This put offers strong leverage and liquidity for a bearish play if AMAT breaks below $270.

• AMAT20260116P272.5 (Put, $272.5 strike, 1/16/2026):
- IV: 42.78% (moderate), Leverage: 72.98%, Delta: -0.307, Theta: -0.012, Gamma: 0.0186, Turnover: 15,819
- Payoff at 5% downside (266.46): $6.04 per contract. This contract balances delta and gamma for a mid-term bearish position with lower time decay.

Action: Aggressive bears may consider AMAT20260116P270 if AMAT closes below $270. For a balanced approach, AMAT20260116P272.5 offers liquidity and moderate leverage.

Backtest Applied Materials Stock Performance
The backtest of AMAT's performance after a -4% intraday plunge from 2022 to the present reveals positive short-to-medium-term gains. The 3-Day win rate is 54.83%, the 10-Day win rate is 55.85%, and the 30-Day win rate is 59.55%, indicating a higher probability of positive returns in the immediate aftermath of the plunge. The maximum return during the backtest period was 7.10%, which occurred on day 59, suggesting that while there was some volatility, the stock generally exhibited a recovery trend.

Act Now: AMAT at Pivotal Support Level – Buy or Sell?
AMAT’s 4.01% intraday drop has brought it to critical support levels near the 30-day MA (262.77) and 200-day MA (194.09). While the sector’s long-term bullish case remains intact due to AI-driven demand, near-term volatility is being fueled by profit-taking and defense sector rotation. Traders should monitor the $270 level for a potential breakdown, with options like AMAT20260116P270 offering high-leverage bearish exposure. Meanwhile, the sector leader Lam Research (LRCX) down 1.55% underscores the broader underperformance in semiconductor equipment. Watch for a $270 breakdown or a rebound above $285 to dictate next steps.