Potential Risks for Applied Materials' Stock Due to China's Strict Regulations
Applied Materials' stock took a dive in recent trading, shedding around 8%, despite showing a 3% gain since the beginning of 2025. Meanwhile, Texas Instruments stock, a competitor in the semiconductor sector, has slipped by 2% this year. So, what's causing Applied Materials' rollercoaster ride?
Let's break it down. The company reported stellar Q1 FY'25 results, with revenue up 7% and earnings growing 12% year-over-year to $2.38 per share. Despite this, their Q2 revenue forecast of $7.1 billion, although indicating growth over FY'24, fell short of expectations. Applied blamed this on obstacles in their export business due to trade restrictions. The U.S. government's tighter regulations on selling advanced chipmaking equipment to Chinese companies have led Applied to project a $400 million revenue loss for this fiscal year. Half of this impact is projected to hit the services segment, responsible for equipment maintenance and calibration. On top of that, Chinese memory manufacturers' demand has weakened in 2025. Applied's significant dependence on China, accounting for 31% of total revenue in Q1 FY'25, has been a persistent concern.
However, Applied might find solace in the booming AI sector. The surge in AI-driven applications and advanced semiconductor process technologies has fueled semiconductor demand due to the necessity of increased computational power, enhanced memory capacity, and complex chip designs. AI also relies on high-bandwidth memory and sophisticated chip packaging. Applied's versatile position across the semiconductor manufacturing value chain, offering tools in materials engineering, process control, and integration, puts them in a prime spot to capture market share as AI demand expands.
Applied Materials' stock performance over the past four years has been anything but stable, with significant fluctuations compared to the S&P 500. In 2021, the stock soared 84%, plummeted 38% in 2022, skyrocketed 68% in 2023, and inched up just 1% in 2024. The Trefis High Quality Portfolio, containing 30 stocks, has displayed significantly lower volatility while outperforming the S&P 500 over the same period.
Given the looming economic uncertainty surrounding interest rate cuts and geopolitical conflicts, could AMAT stock follow in the footsteps of its 2022 and 2024 slump, or will it bounce back more substantially? Or, after a strong quarter, what's next for Barrick Gold Stock after an upbeat Q4?
[1] Applied Materials FYQ1'25 Earnings Call Transcript. (2025). Seeking Alpha.[4] Analyst and Investor Call. (2025). Applied Materials.
- Despite the 3% gain in Applied Materials' stock since 2025, its valuation, as evidenced in recent trading, showed a significant drop of around 8%.
- Despite the challenges in their export business due to trade restrictions, Applied Materials, a key player in the semiconductor industry, still projected revenue growth in Q2 2025, despite falling short of expectations.
- Applied Materials' revenue, which accounted for 31% of their total revenue in Q1 FY'25, comes largely from the Chinese market, creating a reliance that has persisted as a concern.
- Innovations in the AI sector, which rely on high-bandwidth memory and sophisticated chip packaging, could provide significant opportunities for Applied Materials to capture market share and offset potential losses, as the demand for advanced semiconductors continues to grow.
