Applied Materials Navigates China Slowdown, Analysts See Early Recovery Despite Soft Guidance

Wall Street analysts revised their price targets on Applied Materials, Inc AMAT after the company released its first-quarter results Thursday.

The company reported a quarterly revenue of 7.17 billion, up by 7%, topping the analyst consensus estimate of $7.14 billion. It reported an adjusted EPS of $2.38, beating the analyst consensus estimate of $2.29.

Also Read: Lam Research Commits $1.2 Billion Investment In India, Eyes $63 Billion Semiconductor Growth Market

Applied Materials expects second-quarter revenue of $6.70 billion – $7.50 billion versus the analyst consensus estimate of $7.21 billion. The company expects adjusted EPS of $2.12 – $2.48 versus the analyst consensus estimate of $2.30.

Needham analyst Charles Shi maintained Applied Materials with a Buy and lowered the price target from $200 to $195.

Goldman Sachs analyst Toshiya Hari reiterated a Buy on Applied Materials and increased the price target from $202 to $217.

KeyBanc analyst Steve Barger maintained an Overweight on Applied Materials with a price target of $225.

Needham: Applied Materials reported a solid beat for the first quarter but guided the second quarter below consensus. However, Shi noted the company saw China’s strength ahead of its peers and also saw China’s softness ahead of its peers.

The fact that Applied Materials only grew China revenue by 3% in calendar 2024 (versus U.S. peers’ 17%-31%) suggests that it is well ahead of peers in the China correction process. As such, while the guidance is disappointing, Shi noted Applied Materials could be out of the correction early and potentially return to more sustainable ex-China-driven growth early.

Shi projected second-quarter revenue of $7.10 billion (prior $7.25 billion) and EPS of $2.30 (prior $2.35).

Goldman Sachs: Applied Materials is indicated -5% in after-hours trading following a set of solid first-quarter results offset by what was likely an underwhelming outlook for second-quarter vis-a-vis investor expectations that had risen on the back of robust guides from industry peers.

However, Hari continues to view the company as a long-term share gainer within the broader Wafer Fab Equipment market. In the near and medium term, the analyst noted that Applied Materials is enabling many critical technology transitions across leading-edge Foundry/Logic (i.e., Gate-All-Around transistor architectures, Backside Power Delivery) and Memory (e.g., 4F2 DRAM) and, as a result, is outgrowing the market.

The analyst is also encouraged by Applied Materials’ strengthening gross margin profile, which indicates the company’s value add. Hari projected second-quarter revenue of $6.86 billion and EPS of $2.15.

KeyBanc: Last night, Applied Materials reported first-quarter EPS that was 4% above consensus on in-line revenue and guided midpoint second-quarter EPS in line with consensus on revenue that is 2% below.

Barger noted this guidance profile mirrors what he had seen from other names and expects it to reflect some conservatism around this gradually evolving cycle. However, Applied Materials sounded confident about forward trends and said its strong positioning in deposition, etch, and materials science makes it integral to supporting leading-edge and ICAP customers.

The analyst further noted that leading-edge foundry/logic faces increasing TAMs as the industry embraces node transitions around GAA, advanced memory, and newer technologies like backside power delivery, hybrid bonding, and silicon photonics.

Barger noted that these new architectures will play critical roles in improving compute performance, increasing data transfer speeds, and optimizing power efficiency, all of which will be critical to AI and HPC scaling.

Applied Materials also noted, however, that new trade restrictions with China would have a ~$400 million impact in fiscal 2025, half of which will affect the second quarter, and that China exposure would drop to ~25% this quarter.

Barger projected second-quarter revenue of $7.22 billion (prior $7.29 billion) and EPS of $2.39 (prior $2.35).

Price Action: AMAT stock is down 6.87% at $171.61 at last check Friday.

Also Read: