Applied Materials stock dropped by around 8% in Friday’s trading, despite having gained about 3% since the start of 2025. In contrast, Texas Instruments stock, a competitor in the semiconductor sector, has declined by 2% this year. What factors have contributed to Applied Materials’ recent stock movement?
Weak Guidance, China Headwinds
Applied reported better-than-anticipated Q1 FY’25 results, with revenue increasing by 7% and adjusted earnings growing 12% year-over-year to $2.38 per share. However, the company’s Q2 revenue forecast of $7.1 billion, while reflecting growth over FY’24, still fell short of expectations. Applied attributed this to challenges in its export business stemming from trade restrictions. The U.S. government has tightened regulations on selling advanced chipmaking equipment to Chinese companies, leading Applied to estimate a $400 million revenue loss for the current fiscal year. Additionally, approximately half of this impact is expected in its services segment, which provides equipment maintenance and calibration. Besides regulatory hurdles, demand from Chinese memory manufacturers has weakened in 2025. Applied’s significant exposure to China has been an ongoing concern, with the Chinese market contributing 31% of total revenue in Q1 FY’25, a decline from 45% in Q1 FY’24.
AI Upside
Despite these challenges, Applied could mitigate some of these setbacks through increased demand for high-end equipment used in AI-driven applications and advanced semiconductor process technologies. The growth of generative AI has fueled demand for semiconductors due to the need for greater computational power, enhanced memory capacity, and increasingly complex chip designs. AI also relies on high-bandwidth memory and sophisticated chip packaging. Applied is well-positioned across the semiconductor manufacturing value chain, offering tools and services in materials engineering, process control, and integration. With AI adoption accelerating, the semiconductor industry is shifting toward advanced technologies such as gate-all-around transistors and backside power delivery, which enhance chip efficiency—especially for AI applications. Applied, having invested early in these innovations, may capture market share as AI demand expands. This trend has also benefited Applied’s profitability, with gross margins increasing by 100 basis points year-over-year to 48.9% in Q1 FY’25.
AMAT stock’s performance over the past four years has been highly volatile, significantly fluctuating compared to the S&P 500. The stock returned 84% in 2021, declined 38% in 2022, surged 68% in 2023, and gained just 1% in 2024. The Trefis High Quality Portfolio, comprising 30 stocks, has exhibited considerably lower volatility while outperforming the S&P 500 over the same period.
Why is that? Stocks in the HQ Portfolio have delivered stronger returns with lower risk compared to the benchmark index, as evidenced by HQ Portfolio performance metrics. Given the current economic uncertainty surrounding interest rate cuts and geopolitical conflicts, could AMAT stock mirror its underperformance in 2022 and 2024 over the next year, or will it experience a substantial rebound?
We estimate Applied Materials’ stock value at $215 per share, approximately 27% above its current market price. We are in the process of updating our valuation model to reflect Q1 earnings. See our analysis of Applied Materials Valuationfor further insights into our price projection. For an upside perspective, see How Applied Materials Stock Can Surge To $350.
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