To The Moon

$Applied Materials(AMAT)$ is anticipated to release its fiscal Q2 2025 earnings, on Thursday, 15 May 2025, after the market closes.

Revenue: AMAT's Guidance: $6.7 billion to $7.5 billion (midpoint ~$7.1 billion). Analyst Consensus: Around $7.12 billion. This suggests an expected year-over-year growth of approximately 7.12%.

Adjusted Earnings Per Share (Non-GAAP EPS): AMAT's Guidance: $2.12 to $2.48 per share (midpoint ~$2.30). Analyst Consensus: Around $2.31 per share. This would indicate a year-over-year increase of about 10.5% from $2.09 in Q2 2024.

Non-GAAP Gross Margin: AMAT's Guidance: Expected around 48.4%.

Applied Materials' (AMAT) Last Positive Earnings Call Saw Its Share Price Decline by 16.76%

AMAT had a positive earnings call on 13 Feb 2025 which saw its share price declined by 16.76% since.

The earnings call conveyed a generally positive sentiment with record-breaking revenue and growth, substantial advancements in AI and packaging, and significant shareholder returns. However, there are notable challenges, including trade restrictions with China impacting revenues and a decline in DRAM sales. The company's innovation and market positioning remain strong, but geopolitical and market-specific challenges present headwinds.

Context from Q1 2025

• Strong Q1 Results: Applied Materials reported Q1 revenue of $7.17 billion (up 7% YoY) and non-GAAP EPS of $2.38 (up 12% YoY), beating analyst expectations.

• Segment Performance: The core Semiconductor Systems segment was strong, with revenue up 9% YoY, driven by AI demand for advanced chips. The Applied Global Services unit also saw an 8% YoY revenue increase.

• GAAP EPS Impact: Q1 GAAP EPS was significantly lower due to a one-time tax expense in Singapore, which also affected cash flow figures for that quarter.

• Shareholder Returns: The company has been actively returning capital to shareholders through buybacks and dividends. In March 2025, AMAT announced a 15% dividend increase and a new $10 billion share repurchase authorization.

Applied Materials' (AMAT) Guidance

During the first quarter of fiscal 2025, Applied Materials reported record revenues, surpassing previous highs, with total net sales of approximately $7.2 billion, reflecting a 7% year-over-year increase. The company achieved a non-GAAP gross margin of 48.9%, marking a 100 basis point improvement from the previous year and the highest quarterly gross margin since fiscal 2000. Non-GAAP EPS reached a record $2.38, up 12% year-over-year, supported by semiconductor systems sales of $5.36 billion, a 9% increase, and applied global services revenue of $1.59 billion, up 8%.

Despite facing a $400 million revenue impact due to trade restrictions with China, Applied Materials anticipates continued growth, with Q2 revenue projected at $7.1 billion, representing another 7% year-over-year rise, and non-GAAP EPS expected at $2.30, up 10%. The company is focused on leveraging its leadership in advanced semiconductors and materials engineering to navigate major technology inflections in AI, foundry logic, DRAM, and advanced packaging, with plans to double its packaging revenue over the next few years.

Key Factors and Analyst Focus for the Q2 Report

Applied Materials delivered record revenues in Q1 FY2025, surpassing the prior high set last quarter, with total net sales of approximately $7.2 billion, up 7% year over year.

AI-Driven Demand: Continued strength in demand for equipment used in manufacturing AI-related chips will be a critical focal point. CEO Gary Dickerson has emphasized the importance of energy-efficient AI architectures.

Applied Materials captured more than half of the advanced packaging market and is on track to double revenues over the next several years, with significant innovations in energy-efficient AI solutions.

Export Controls and Geopolitical Risks: The impact of U.S. export restrictions, particularly concerning China, on orders and revenue will be closely scrutinized.

The ability to serve the China market is constrained, with an estimated revenue impact of $400 million in fiscal 2025 due to updated trade rules, resulting in expected service revenue declines.

Semiconductor system sales were partially offset by a decline in DRAM sales, as prior year sales to customers in China did not repeat.

Cash Flow: Investors will look for a rebound in free cash flow after the Q1 tax impact. The company distributed $1.6 billion to shareholders through $1.3 billion of share repurchases and $326 million of dividends.

Segment Dynamics: Semiconductor Systems: Sustaining growth in this largest segment is key. Foundry logic saw a 20% growth, driving semiconductor system sales to $5.36 billion for Q1, up 9% year over year.

Applied Global Services: Continued solid performance is expected.

Display and Adjacent Markets: This segment has faced weakness, and any signs of change will be noted. There is a more measured level of investment in the ICAPS nodes following strong spending in 2023 and 2024, leading to a decline in sales for this segment.

Management Outlook: Guidance for Q3 and the remainder of fiscal 2025 will be crucial for investor sentiment, reflecting the company's view on market cyclicality, demand trends (especially in AI, automotive, and industrial sectors), and ongoing supply chain dynamics.

Non-GAAP earnings per share grew by 12% year over year to a record $2.38, driven by revenue growth, profitability improvements, and share repurchases.

Broader Industry Trends (2025)

Dominance of AI: AI continues to be a major catalyst for the semiconductor industry, driving demand for high-performance computing (HPC) chips and high-bandwidth memory (HBM).

Advanced Node Transition: The industry is pushing towards more advanced manufacturing nodes (e.g., 3nm and below) and 3D chip architectures.

Supply Chain Adjustments: Geopolitical tensions are leading to efforts to diversify and localize semiconductor supply chains (e.g., CHIPS Act in the US and Europe).

Automotive and Industrial Markets: While AI is a strong driver, the demand from other sectors like automotive and industrial electronics will also influence overall market conditions.

Sustainability: Increasing emphasis on green manufacturing and energy-efficient chip designs.

Applied Materials' (AMAT) Price Target

Based on 32 analysts from Tiger Brokers offering 12 month price targets for Applied Materials in the last 3 months. The average price target is $202.74 with a high forecast of $250.00 and a low forecast of $152.00. The average price target represents a 32.48% change from the last price of $153.03.

Technical Analysis - Exponential Moving Average (EMA)

AMAT's stock had underperformed the broader market in the year leading up to recent reports. The Q1 earnings beat was followed by a stock price decline, indicating investor sensitivity to guidance and underlying metrics beyond headline numbers.

If we looked at how AMAT momentum have been building up since the early April sell-off, we are seeing the bulls gain back the control and have pushed above 50-day period, but the strength is not there.

We need to see stronger RSI momentum to push towards the overbought and the bulls need to attempt a daily uptrend continuation pushing a clear range from the 50-day period, this is because AMAT decline even though its earnings beat, so investors are sensitive to its guidance and some headline numbers.

If we looked at the short interest, we are seeing that investors are not into any selling off, but we need to continue to see how the tariffs episode might developed.

Because if there is any headlines affecting AMAT, investors would most likely react quite significantly to the share price movement.

Summary

Analysts and Applied Materials' own guidance point towards a Q2 2025 with year-over-year growth in revenue and adjusted EPS. The narrative will likely revolve around the sustainability of AI-driven demand, the company's ability to navigate complex geopolitical and regulatory landscapes (especially export controls), and the outlook for the broader semiconductor market.

Investors was concerned about the headline numbers in Q1 2025 which caused the stock price to decline despite an earnings beat, so beyond that, I think we need to watch closely on the commentary on order flow, segment performance (particularly the Display segment).

I will also be watching the cash flow generation as this is an important indicators for investors.

Appreciate if you could share your thoughts in the comment section whether you think AMAT would be able to provide an earnings beat with better headline numbers and show sustainable AI driven demand and growth.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.