Applied Materials' Stock Dips 5% Despite Four-Day Rally Post-Earnings Surprise

On May 16th, Applied Materials (AMAT) experienced a 0.35% increase, marking a four-day gain streak of 12.30%. This rise follows the company's announcement of its second-quarter earnings, which fell slightly short of Wall Street expectations.

In the quarter ending April 27, Applied Materials reported a 7% year-over-year revenue increase to $7.1 billion, narrowly missing the analysts’ forecast of $7.13 billion. However, adjusted earnings per share came in at $2.39, exceeding projections of $2.31 per share.

The Semiconductor Systems segment, a crucial revenue driver, contributed $5.26 billion, missing the consensus estimate of $5.32 billion. Management attributed the performance lag to slowed investments in IoT, communications, automotive, power, and sensor markets, though significant investments in advanced process chip technology partially mitigated these setbacks.

Amid the evolving landscape, Applied Materials and other chipmakers are navigating the constraints of U.S. sales restrictions toward China, a vital market for their products. Three months prior, the company anticipated a $400 million revenue dip in fiscal 2025 due to maintenance cessation at certain Chinese client facilities. These regulatory developments have persisted under the current administration.

The firm’s latest quarterly revenue from China accounted for 25%, down from 43% a year earlier. CEO Gary Dickerson emphasized the heightened market uncertainties but affirmed the company’s robust operational resilience. Nonetheless, this assurance triggered concerns within capital markets, with post-earnings release trading seeing a more than 5% dip in stock price.

The outlook for the third fiscal quarter projects revenues within the $7.2 billion range, with a $500 million variation. Analysts anticipated figures up to $7.4 billion. The company foresees earnings per share hovering around $2.35. Despite slower orders for conventional equipment in automotive and industrial sectors, Dickerson sees ongoing demand influenced by the widespread adoption of smart devices, AI growth, and increased complexity in chip processes driving equipment upgrades.

Regarded as a prominent supplier for giants like TSMC, Samsung, and Intel, Applied Materials’ forecasts often serve as a bellwether for semiconductor industry health, with CFO Brice Hill noting that genuine shifts in customer demand remain unobserved amid current geopolitical complexities.