MW Applied Materials' guidance didn't impress. Here's why some analysts are still upbeat.
By Britney Nguyen
The semicap company expects the first half of next year to be relatively flat, but AI-driven demand for leading edge chips and DRAM should lead to acceleration in the latter half, some analysts say
Applied Materials' stock fell almost 9% in pre-market hours on Friday, but later recovered to be down about 1% after the market opened.
Shares of Applied Materials Inc. were down Friday after the company delivered a slight earnings beat but flat guidance on Thursday. Despite declines in its key China business due to U.S. trade restrictions, some analysts see an acceleration coming in the second half of next year, driven by artificial-intelligence demand.
The semiconductor capital equipment company's China revenue was down 23% from the previous quarter, and represented 29% of the company's revenue for the fiscal fourth quarter, which was down 1% from a year ago - but was still the largest part of the company's business. Overall, China made up 30% of Applied Materials' revenue for fiscal year 2025, down from 37% the preceding fiscal year.
While Applied Materials (AMAT) delivered a "smaller beat relative to peers," Jefferies's Blayne Curtis said the company's revenue had "better quality given the large stepdown in China" compared with its fellow semicap companies KLA Corp. (KLAC,) and Lam Research Corp. $(LRCX)$, which are seeing China revenue go up. That leaves Applied Materials' China business "relatively de-risked into next year," Curtis said in a Thursday note.
Read: The surprising stocks leading the tech sector this year thanks to an AI renaissance
Applied Materials stands to benefit from the Bureau of Industry and Security's decision earlier this week to suspend for one year the expansion of export restrictions known as the Affiliates Rule, Curtis said.
Under the rule, which is suspended through at least Nov. 9, 2026, "any entity that is at least 50 percent owned directly or indirectly, individually or in the aggregate, by one or more entities on the Entity List, or by unlisted entities that are subject to license requirements or other restrictions based upon their ownership," are automatically impacted by restrictions of the trade blacklist.
Applied Materials had previously guided for the rules to impact its fiscal-fourth-quarter revenue by $110 million, but now expects to ship that revenue in the fiscal first quarter, Curtis noted.
"The big debate remains if the departure from peers is a sign of share loss in China, but [Applied Materials] remains adamant that it is not," Curtis said.
Applied Materials' stock fell 1.6% in recent morning trading, but pared earlier intraday losses of as much as 8.9%. It has now shed 8.8% since closing at a 16-month high of $240.89 on Nov. 5.
Stifel's Brian Chin wrote in a Friday note that he expects China to remain a headwind for Applied Materials in fiscal year 2026. He also noted that the company "was the first semicap to call for and see a slowdown" in its China business.
"Especially given the about face on the prior China restrictions, we are optimistic that quarterly China sales could stabilize sooner rather than later," Chin said.
Despite not being "the most exciting quarter" for the company, the Jefferies team said it was a "positive," given Applied Materials' strength in equipment for leading-edge chips and dynamic random-access memory, which are seeing strong demand from the AI build-out. While the first half of next year will likely "remain muted," Curtis said, "material acceleration" will come in the latter half of the year due to AI.
See more: Why Micron's stock is Morgan Stanley's new top pick - even with its 180% rally this year
The company is preparing for "higher demand beginning in the second half of calendar 2026," Applied Materials Chief Financial Officer Brice Hill said in a statement, citing conversations with customers and partners.
"We have targeted our R&D investments to create new products and technologies that will enable even faster and more energy-efficient transistors, chips and systems and drive our growth in the years ahead," Hill said.
Applied Materials Chief Executive Gary Dickerson said that the company is "well positioned" to continue leading in leading-edge logic chips, DRAM and advanced packaging solutions as companies ramp up volume production.
-Britney Nguyen
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 14, 2025 11:06 ET (16:06 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
Comments