AMAT has OK Qtr but Mixed Outlook Means Weaker 2025 – China & Delays & CHIPS Act?

– AMAT has OK QTR but outlook below expectations as 2025 weakens
– Strength in AI cannot offset weakness in the rest of the market
– Increasing headwinds going into 2025 dampen overall outlook
– Weakness combined with regulatory uncertainty reduce valuations

Quarter and year are just OK but outlook is weak/mixed

Applied Materials reported revenues of $7.05B and non GAAP EPS of $2.32 modestly better than expectations of $6.97B and $2.19.

Guidance is for revenues of $7.15B +-$400M and $2.29+-$0.18 versus street of $7.25B and $2.27.

Body language and discussion on the call was not very assured nor certain about 2025. Actual system sales were not that great but service revenues helped offset systems weakness.

Year over year growth was minimal at 2%.

Hard for AI to drag an overall weakening semiconductor industry along

While we hear a lot of talk about AI, we keep repeating that its less than 10% of memory and only the very bleeding edge of a single foundry , TSMC. The vast majority of memory, two of the 3 big players (Samsung & Intel), trailing edge nodes are all weak with negative momentum.

As we pointed out in our note this past Monday there has been near term additional negative news of Micron’s delay and other order delays.

CHIPS Act risk & China risk add to uncertainty

When asked about the new incoming administration, management demurred rather than reacting positively as prior comments on the CHIPS Act create open questions.

China is down to about 30% but 30% is still the largest slug of Applied business so losing China would be a horrible hit.

Tariffs and other draconian regulatory issues add to potential China risk in addition already declining demand.

Results and outlook supports our ongoing concerns

In our note this past Monday we said “News flow for semi equipment all bad in front of AMAT”.

Link to our recent note

Applied’s report and outlook only support our ongoing concern/predictions about a weaker 2025 and worsening near term data points.

We would reiterate that this in no way implies that AI is weak or has any fundamental issues….quite the contrary, we think AI remains super strong and is tremendously positive for semiconductor equipment. Without AI, semiconductor equipment would be in a freefall right now.

The simple fact is that 10% or less of the chip industry that is on fire , can’t hope to make up for the other 90% that is weak or muddling along at best….

The Stocks

We had warned investors to “lighten up” in front of Applied’s earnings as we saw much more downside beta than potential upside beta.

Applieds stock was off over 5% in after market trading as investors were clearly unhappy with the poor outlook

There will obviously be collateral damage to the semi equipment group as 2025 concerns are not contained to just AMAT.

ASML stock recently saw a nice pop as it reaffirmed its long term revenue and financial model over the next few years (which we heartily agree with). The question is clearly about 2025….is it up, down or sideways….longer term, for semiconductors and semiconductor equipment, is always up and to the right …

There had been an initial, more positive view by many analysts which now appear too optimistic and will have to be trimmed to be more conservative, to the view we have long held, of a slower recovery with more lumps and bumps along the way

We hope you still have your seat belts on as the near term turbulence will continue!

About Semiconductor Advisors LLC

Semiconductor Advisors is an RIA (a Registered Investment Advisor),
specializing in technology companies with particular emphasis on semiconductor and semiconductor equipment companies. We have been covering the space longer and been involved with more transactions than any other financial professional in the space. We provide research, consulting and advisory services on strategic and financial matters to both industry participants as well as investors. We offer expert, intelligent, balanced research and advice. Our opinions are very direct and honest and offer an unbiased view as compared to other sources.

Also Read:

KLAC – OK Qtr/Guide – Slow Growth – 2025 Leading Edge Offset by China – Mask Mash

LRCX- Coulda been worse but wasn’t so relief rally- Flattish is better than down

ASML surprise not a surprise (to us)- Bifurcation- Stocks reset- China headfake

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