Applied Materials (AMAT, Financial) surpassed earnings and sales estimates for the fifth straight quarter in Q4 (Oct), aligning its Q1 (Jan) projections with analyst expectations. Despite this, AMAT's stock is nearing September lows.
Before AMAT's report, ASML (ASML, Financial) issued a bleak Q3 (Sep) report and a pessimistic FY25 (Dec) outlook, citing slow recovery in non-AI markets and potential export restrictions to China. This affected peers like AMAT, KLA Corp (KLAC, Financial), Lam Research (LRCX, Financial), and NXP Semi (NXPI, Financial).
Investors found AMAT's Q4 report lacking, especially with its Q1 guidance. The projected revenue range of $6.75-7.55 billion fell short of expectations. China's revenue share decreased to 30%, down from previous quarters, due to changing economic conditions. AMAT expects this trend to continue, with potential tighter U.S. export restrictions further impacting revenue.
- AI demand remains a key focus for AMAT, with significant potential to transform the economy. AI requires a 10,000x increase in computing efficiency, a target AMAT aims to meet long-term.
- AI contributed to AMAT's Q4 success, with a 4.8% revenue increase to $7.04 billion and an 8.9% rise in adjusted EPS to $2.32. Foundry/logic sales grew 12%, driven by Gate-All-Around transistor investments. Services revenue hit a record $1.64 billion, up 11%.
- Non-AI markets struggled. DRAM sales fell 10%, reflecting China's revenue mix. NAND sales remained flat, and ICAPS sales, covering IoT, auto, and other sectors, slightly declined. The Display segment dropped 29%, highlighting consumer electronics market weakness.
Despite strong AI-related demand and optimism for wafer fab equipment spending growth in 2025, AMAT's Q1 guidance did not ease current concerns. China's economic challenges and U.S./China relations continue to pose risks, potentially leading to volatility in the coming months.
