Chipmaking equipment maker Applied Materials will report its second-quarter earnings Thursday afternoon amid two competing trends. Its high-end equipment is essential to the buildout of new chip manufacturing capacity in the artificial-intelligence investment boom, but Chinese sales growth is flagging after years of strength.
The stock is up 70% this year, so it looks like investors are betting on AI over China.
Wall Street analysts expect the company to report $2.68 in adjusted earnings per share, up from $2.39 last year. Revenue is seen at $7.7 billion, rising 8% year-over-year. System sales are projected to increase 11% to $5.8 billion, with the rest of revenue coming from services and support.
Applied Materials makes machines for a wide range of semiconductor manufacturing processes, but AI chips require the best of the best, and the company serves that market, with its equipment involved in some of the crucial steps used to turn blank silicon wafers into chips. Its customers include the world's largest chip manufacturers like Taiwan Semiconductor Manufacturing and Micron. When the AI boom began, many chipmakers were at first hesitant to commit significant capital to new capacity after a sharp boom-bust cycle following the Covid-19 pandemic lockdowns.
But now chip manufacturers are racing to bring new top-end capacity online, beginning later this year, but mostly next year and continuing through 2028. Analysts expect Applied Materials' sales and earnings growth to pick up substantially in the company's fiscal fourth quarter, which ends in October.
On the other side of the ledger, sales to Chinese customers are a headwind. Applied Materials is subject to export controls on its high-end equipment, and the company may be seeing increased competition from Chinese domestic competitors on the low-end. Applied Materials expects Chinese sales growth to be flat this year, but that will likely be more than offset by AI demand from South Korea and the U.S.
