Stock Plunge Alarms Investors: Applied Materials Experiences Significant Decline in Share Price
In a surprising turn of events, Applied Materials (WKN: 865177) shares dropped by nearly 14% after the US market close, despite the company reporting strong third-quarter results.
The Santa Clara-based company, which primarily manufactures equipment for chip fabrication, achieved an 8% increase in revenue, totaling $7.30 billion. This figure surpassed analyst expectations of $7.22 billion. Earnings per share for the quarter amounted to $2.48, also exceeding the expected $2.36.
However, the positive financial performance was overshadowed by the company's weak guidance for the future quarters. CEO Gary Dickerson cited macroeconomic and political instability, particularly in China, as reasons for current uncertainty and reduced visibility affecting the company's business.
This uncertainty led to a knee-jerk market sell-off, as investors await more positive signals from Applied Materials. It's important to note that this decline does not reflect the actual Q3 performance but rather concerns about near-term business conditions, particularly related to the semiconductor market dynamics in China.
Meanwhile, the Trump administration's tariffs could potentially impact the prices of imported chips for various companies. These tariffs prompted China's semiconductor market to front-load its semiconductor equipment orders to avoid higher costs, causing a temporary surge in orders earlier. This front-loading effect has now led to a slowdown or a return to more normalized, steady growth in the market.
The tariffs created timing distortions rather than a sustained drop in demand, impacting the quarterly timing of Applied Materials’ business but not its long-term health. For the fourth quarter, Applied Materials anticipates adjusted earnings per share of $2.11, falling short of analyst estimates of $2.39.
It's worth mentioning that AKTIONÄR, a well-known investment advisory firm, continues to favor ASML over Applied Materials in the sector. Applied Materials' stock is not currently on AKTIONÄR's recommendation list.
Despite the recent drop, the overall business and balance sheet remain strong, with confident capital return strategies to shareholders. The company's long-term prospects continue to be promising, as the global demand for semiconductors continues to grow.
[1] Source: Applied Materials' Q3 2024/25 Earnings Call Transcript, 1st November 2024.
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