Shares of Applied Materials fell nearly 14% in premarket trading on Friday after the US chip equipment maker issued a downbeat fiscal fourth-quarter forecast, citing sluggish demand from China and growing tariff-related risks.
The Santa Clara, California-based company projected adjusted earnings per share of $2.11, plus or minus 20 cents, for the three months ending in October, down from $2.32 in the same period last year.
Revenue is expected to come in at $6.7 billion, give or take $500 million, compared with $7.05 billion a year earlier.
Both figures fell short of Wall Street’s expectations, with analysts on average estimating $7.33 billion in sales, according to LSEG data.
Tariffs and China demand cloud near-term visibility
China accounted for 35% of Applied Materials’ revenue in the July quarter, making it the company’s top market.
CEO Gary Dickerson warned of “wide-ranging implications for the semiconductor industry” from shifting US export policies during a post-earnings call, saying the resulting volatility is weighing on visibility for orders and earnings.
The company’s warning follows similar caution from ASML Holding last month, with both major equipment makers flagging China as a growing operational risk.
Deutsche Bank strategists noted that China-related volatility is “significantly clouding visibility into core earnings potential both geopolitically and cyclically.”
AI demand still seen as long-term growth driver
Despite the softer outlook, Chief Financial Officer Brice Hill reiterated Applied Materials’ confidence in medium- to long-term growth, particularly from artificial intelligence, advanced process technologies, and DRAM demand.
“We’re not changing our view of strong demand in AI,” Hill said in an interview. “But it’s uneven. We’re not seeing a steady growth pattern.”
The company is also investing heavily in its US operations, including a partnership with Apple and the development of a new facility in Arizona.
Hill said these moves demonstrate confidence in Applied’s positioning for future industry cycles.
Analysts see mixed short-term prospects
JP Morgan analyst Harlan Sur, who rates the stock “overweight” with a $220 price target, said the China slowdown and inconsistent spending by major foundry customers appear to be more about timing than structural weakness.
Still, he expects the company to underperform this year due to heavy China exposure, weakness in its ICAPS segment, and uneven advanced foundry and logic spending.
Citigroup, with a “buy” rating and $205 price target, pointed to potential product mix challenges compared to peers such as KLA and Lam Research, while noting Applied is taking a cautious approach to China.
Berenberg, also rating the stock “buy” with a $240 target, expects the company to benefit from a recovery in mobile-related display investments, particularly from display makers like Samsung.
Morningstar maintained its $196 fair value estimate, citing Applied’s strong position to capitalize on AI-driven demand over the medium term despite near-term challenges.
The brokerage remained confident in the company’s long-term outlook despite weaker short-term guidance.
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