Applied Materials (AMAT) Stock Drops Nearly 5% Despite Strong Q3 Beat

Key Takeaways

• Applied Materials delivered adjusted earnings of $3.50 per share, surpassing the Street’s $3.40 expectation, while revenue reached $9.12 billion against a $9 billion consensus.
• On a GAAP basis, earnings per share registered at $3.17, falling below projections, influenced by an unrealized $220 million investment writedown.
• Shares declined 4.9% to $508.30 during Friday’s premarket session.
• Fourth-quarter revenue outlook significantly exceeded expectations at $10.25 billion versus the $9.55 billion Street estimate.
• DRAM represented 26% of semiconductor systems sales in Q3, compared to 22% in the prior-year period.

Shares of Applied Materials (AMAT) slid 4.9% to $508.30 in Friday’s premarket session following fiscal third-quarter earnings that, while exceeding Wall Street projections, left investors wanting more.

Applied Materials, Inc., AMAT

The semiconductor equipment giant posted adjusted earnings per share of $3.50, representing growth from $2.48 in the year-ago quarter and surpassing the FactSet consensus of $3.40. Sales climbed 25% year-over-year to $9.12 billion, topping the anticipated $9 billion.

However, GAAP earnings told a different story at $3.17 per share, missing Wall Street’s mark. The company attributed the shortfall primarily to a $220 million unrealized loss on investments.

The stock had already endured significant pressure in July, plunging 30%. Despite Friday’s decline, AMAT remains up an impressive 108% year-to-date.

Investor expectations were sky-high heading into the print. As a primary beneficiary of accelerating capital expenditures in AI chip manufacturing and memory production, Applied Materials faced an elevated performance bar.

Fourth Quarter Outlook Crushes Street Estimates

Looking ahead to fiscal Q4, Applied Materials projected revenue of $10.25 billion, with a variance of plus or minus $500 million. This guidance substantially exceeds the $9.55 billion Wall Street consensus.

The company’s adjusted EPS forecast of $4.02 per share, give or take 20 cents, similarly outpaced the analyst estimate of $3.71 by a considerable margin.

Yet even with robust forward-looking guidance, market participants showed little mercy in after-hours trading Thursday.

Memory Segment Gains Momentum

DRAM equipment contributed 26% to semiconductor systems revenue during the third quarter, rising from 22% a year earlier. Foundry and logic equipment continue to dominate Applied Materials’ systems portfolio.

AI-fueled appetite for expanded memory infrastructure shows no signs of slowing, positioning Applied Materials favorably to capitalize on this secular trend.

The company released earnings alongside industry peers KLA Corp. and Lam Research, both delivering solid quarterly performances. This trio continues battling for market share in DRAM manufacturing equipment as capacity expansions accelerate globally.

Applied Materials’ quarterly report arrived during a particularly active earnings period for AI-related companies. Cloud infrastructure provider CoreWeave, AI server manufacturer Supermicro, and AMAT were among the prominent names reporting this week.

According to FactSet data, S&P 500 second-quarter earnings are tracking toward a 50% year-over-year increase, marking the strongest growth rate since 2021, with Bank of America strategists identifying AI as the principal catalyst.

Approximately 90% of S&P 500 constituents have now disclosed quarterly results.

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