Geopolitical Risk and Semiconductor Supply Chain Shifts: Assessing Applied Materials' Exposure and Opportunities

The global semiconductor industry is at a crossroads, shaped by geopolitical tensions, shifting trade policies, and the urgent need to secure domestic supply chains. For investors, Applied Materials (AMAT) stands at the intersection of these forces, navigating near-term headwinds in Chinese demand while capitalizing on the U.S. government's aggressive push to revitalize domestic chipmaking. This article evaluates how Applied Materials balances these dual pressures and whether its strategic positioning offers a compelling long-term opportunity amid a fragmented global landscape.

Near-Term Challenges: Chinese Demand Volatility and Export Controls

Applied Materials' Q2 2025 earnings underscore the fragility of its exposure to China. Revenue from the region fell to 25% of total sales, a sharp decline from 45% in the prior year, driven by U.S. export restrictions and geopolitical tensions. The company's inability to provide maintenance and optimization services to Chinese customers—a segment that previously contributed 23% of its annual revenue—has compounded the impact. While China remains a critical market, its demand profile has shifted from advanced-node technologies to legacy equipment, reflecting a strategic recalibration by Chinese manufacturers to comply with export controls.

This volatility is not unique to Applied Materials. The broader industry has seen Chinese firms stockpile equipment in anticipation of further restrictions, leading to a temporary oversupply of unused tools. However, this behavior also signals a long-term structural shift: China's reliance on foreign equipment for cutting-edge manufacturing is being curtailed, while its focus on self-sufficiency in legacy nodes accelerates. For Applied Materials, this means a reduced role in China's high-end semiconductor ecosystem but a continued presence in its mid-tier market.

Long-Term Opportunities: U.S. Government-Driven Growth

The U.S. government's CHIPS Act represents a seismic shift in the semiconductor landscape, allocating $52.7 billion to bolster domestic manufacturing, research, and supply chain resilience. Applied Materials is strategically positioned to benefit from this initiative. In 2025, the company secured a $100 million grant under the CHIPS National Advanced Packaging Manufacturing Program (NAPMP) to develop silicon-core substrate technology for next-generation AI and high-performance computing. This project, located in Santa Clara, California, aligns with the Biden administration's goal of advancing energy-efficient AI infrastructure and securing U.S. leadership in advanced packaging.

Beyond federal grants, Applied Materials has deepened its domestic footprint through significant capital investments. A $200 million expansion in Arizona's Chandler facility—part of a $400 million U.S. manufacturing push over five years—will create 200 jobs and enhance production of critical components for semiconductor equipment. The company's partnership with Texas Instruments (TXN) and Apple further cements its role in the U.S. chipmaking renaissance. By supplying American-made equipment to TI's U.S. factories, which produce semiconductors for Apple's products, Applied Materials is directly contributing to the “reshoring” of foundational technologies.

Strategic Partnerships and R&D: A Foundation for Resilience

Applied Materials' R&D focus on advanced packaging and 3D heterogeneous integration positions it to capitalize on the AI-driven demand for high-performance computing. Its silicon-core substrate technology, developed in collaboration with 10 industry partners, addresses a critical bottleneck in semiconductor design: the need for energy-efficient, high-bandwidth interconnects. This innovation aligns with the CHIPS Act's emphasis on next-generation manufacturing and could become a cornerstone of the U.S. semiconductor ecosystem.

The company's lobbying efforts—$860,000 spent in Q2 2025 on issues ranging from tax reform to workforce development—further highlight its proactive engagement with policy frameworks that shape the industry. By influencing legislation and securing favorable regulatory environments, Applied Materials is not only adapting to the CHIPS Act but also shaping its future.

Investment Implications: Buying the Dip or a Structural Shift?

Applied Materials' recent setbacks in China raise a critical question: Are these temporary disruptions, or do they signal a deeper structural shift in global demand? The answer lies in the company's ability to offset Chinese headwinds with U.S. growth. While China's revenue share has declined, the U.S. and other Asian markets (notably South Korea and Taiwan) have more than compensated. South Korea and Taiwan accounted for 22% and 28% of Q2 2025 revenue, respectively, reflecting robust demand for advanced-node manufacturing and AI-centric technologies.

For investors, the key is to assess whether Applied Materials' U.S. investments and government contracts can sustain long-term growth. The company's $100 million NAPMP grant, combined with its $200 million Arizona facility, demonstrates a clear commitment to domestic innovation. However, the success of these initiatives will depend on the pace of U.S. semiconductor adoption and the durability of government support.

Conclusion: A Strategic Bet on Resilience

Applied Materials is navigating a complex landscape of geopolitical risk and supply chain shifts with a dual strategy: mitigating Chinese demand volatility while accelerating U.S. domestic growth. Its recent investments, partnerships, and R&D focus position it as a key player in the CHIPS Act-driven renaissance. While near-term challenges persist, the company's alignment with U.S. policy goals and its leadership in advanced packaging technologies suggest a compelling long-term opportunity. For investors willing to tolerate short-term volatility, Applied Materials offers a strategic bet on the future of semiconductor manufacturing—one that balances geopolitical uncertainty with the promise of a resilient, homegrown supply chain.