Applied Materials Earnings On Deck – What To Expect From AMAT

Applied Materials, Inc. (NASDAQ:AMAT), a linchpin in the semiconductor manufacturing equipment sector, finds itself heading into earnings off the back of a mixed year in the markets. AMAT's stock has rallied 50% off April's low, yet continues to trade down 5.7% over the past 12 months.

This comes after a period of significant volatility, marked by both impressive financial results and headwinds from U.S. export restrictions affecting its operations in China.

Analysts project that Applied Materials will report earnings per share (EPS) of $2.36 for the current quarter , representing an increase from $2.12 in the same period last year. Revenue is expected to reach $7.21 billion, up from $6.78 billion a year ago, marking a 6.42% year-over-year growth.

The company's recent performance paints a picture of strength tempered by geopolitical realities. Second-quarter fiscal year 2025 revenues reached $7.1 billion, a 7% increase year-over-year. Earnings per share (EPS) were particularly impressive, with GAAP EPS hitting a record $2.63 and non-GAAP EPS reaching $2.39, representing substantial year-over-year growth. These figures underscore Applied Materials' ability to capitalize on the increasing demand for semiconductor technology.

However, the elephant in the room remains the impact of U.S. export controls on semiconductor equipment destined for China. Once Applied Materials' largest overseas market, China's contribution to total sales has shrunk considerably, from 43% a year ago to approximately 25% in the most recent quarter. This decline directly impacts the company's revenue streams, particularly within its semiconductor systems segment, which experienced slightly lower-than-expected sales of $5.26 billion.

While the prevailing narrative emphasizes the surging demand for AI-related semiconductors as a major growth driver for Applied Materials, it's worth considering a more bearish scenario. What if the current AI hype cycle is peaking, and the actual demand for specialized AI chips doesn't meet the lofty expectations? Could there be a significant inventory correction in the semiconductor industry? What if the investments in advanced chip technologies, driven by AI, do not materialize as rapidly as anticipated?

Moreover, the geopolitical landscape is constantly shifting. Further escalation of trade tensions between the U.S. and China could result in even stricter export controls, further limiting Applied Materials' access to the Chinese market. The company's ability to adapt to these changing circumstances and find alternative markets will be crucial for its long-term success. While the narrative focuses on AI driving growth, over dependence on one sector can lead to increased volatility if that sector slows down.

Applied Materials' ability to navigate these challenges and capitalize on emerging opportunities will ultimately determine its long-term success. Management commentary on the demand environment for its various product segments will also provide valuable insights into its future prospects.