Applied Materials Stock (AMAT) Down Double Digits As Soft Guidance Outweighs Earnings

Applied Materials stock (AMAT) is down sharply in extended hours trading, 14.85% lower trading following the release of its fiscal third-quarter 2025 earnings. While the semiconductor equipment giant reported results that beat the street, its guidance for the upcoming fourth quarter fell significantly short of consensus estimates.

The company announced Q3 revenue of $7.30 billion, up 8% year-over-year, precisely matching consensus estimates, and representing a record performance. Non-GAAP EPS came in at $2.48, a 17% increase year-over-year.

Net income also saw a rise, reaching $1.78 billion, a 4% increase from the same period last year. The company's GAAP gross margin stood at 48.8%, while the operating margin was 30.6%. These figures underscore a sixth consecutive year of revenue growth for Applied Materials.

However, the positive momentum was overshadowed by the company's outlook for the fourth quarter. AMAT projects Q4 EPS to be $2.11, plus or minus $0.20, considerably below the consensus estimate of $2.38. Revenue guidance was also disappointing, with the company forecasting $6.7 billion at the midpoint, plus or minus $500million, against expectations of $7.32 billion.

Management attributed the weaker-than-expected guidance to a combination of factors. A pause in new equipment orders from Chinese customers, driven by U.S. export restrictions, has led to excess capacity that the company expects will take several quarters to digest. Additionally, management cited “non-linear demand” from leading-edge customers.

The market reaction was swift and negative. Summit Insights downgraded Applied Materials to Hold from Buy following the earnings release, citing concerns about overcapacity in China and the potential for several quarters of digestion. The firm noted that U.S. export restrictions have likely driven pull-ins from Chinese customers, creating an imbalance in the market.

CEO Gary Dickerson acknowledged the challenges but remained optimistic about the long-term prospects, stating, “While near-term macro and policy uncertainty creates elevated risk, we remain confident in the long-term growth of the semiconductor industry.”

Despite consistent revenue and earnings growth over the past six years, Applied Materials now faces elevated risk in the near term, particularly regarding China. The analyst downgrade and market sell-off reflect concerns about the company's ability to navigate these headwinds and maintain its growth trajectory. The stock is now trading at levels that reflect these heightened uncertainties, once again proving that the guidance outweighs the current period more often than not.