TLDR
- Applied Materials stock fell more than 4% Friday following warnings of reduced China chip equipment spending in fiscal 2026
- U.S. export controls blocked $110 million in Q4 shipments until temporary reversal after Trump-Xi meeting last month
- Fiscal 2026 revenue faces $600 million headwind from expanded export restrictions on advanced chip equipment to China
- Fourth-quarter performance exceeded expectations with $2.17 per share earnings on $6.8 billion revenue
- Company anticipates AI spending increase will drive equipment sales growth in second half of 2026
Applied Materials stock dropped over 4% in premarket trading Friday after the chip equipment manufacturer warned of weakening Chinese demand. The decline came even as the company reported quarterly results that topped Wall Street projections.
The semiconductor equipment maker said chipmaking gear spending in China will soften next year. Tighter U.S. export controls on advanced technology are behind the expected slowdown.
About $110 million worth of products couldn’t ship during the fiscal fourth quarter due to export restrictions. Those limitations were suspended temporarily after President Trump met with Chinese President Xi Jinping last month.
The company faces a $600 million revenue impact in fiscal 2026 from expanded U.S. restrictions on exports of sophisticated chip manufacturing equipment to China. The projected hit creates uncertainty about near-term growth prospects.
Quarterly Performance Exceeds Forecasts
Applied Materials delivered fourth-quarter results that beat analyst estimates across the board. The company posted adjusted earnings of $2.17 per share on revenue of $6.8 billion.
Wall Street had expected earnings of $2.11 per share and revenue of $6.68 billion. The beat suggests underlying business momentum remains intact outside China-related headwinds.
Guidance Tops Expectations
Current-quarter guidance also came in ahead of consensus estimates. Applied Materials projects adjusted earnings of $2.18 per share on revenue of $6.85 billion at the midpoint.
Analysts had anticipated earnings of $2.15 per share and revenue of $6.80 billion. The outlook indicates continued demand from customers in other regions.
The company sees artificial intelligence investment as a potential bright spot. Applied Materials expects rising AI-related spending to increase semiconductor equipment sales during the latter half of fiscal 2026.
Stifel analysts provided commentary on the China outlook. They noted Applied Materials was first among semiconductor equipment providers to forecast and witness the China demand slowdown.
The analysts expressed confidence about potential stabilization. Given the reversal of earlier restrictions, they believe quarterly China sales could steady faster than many expect.
Year-to-Date Performance Remains Strong
Applied Materials stock has climbed approximately 36% so far in 2025 despite Friday’s premarket decline. The gains reflect investor optimism about long-term growth opportunities in the semiconductor equipment sector.
The company supplies critical tools used in chip manufacturing processes. Demand for these products typically correlates with overall semiconductor industry capital spending cycles.
China represents a key market for U.S.-based chip equipment manufacturers. Geopolitical tensions between Washington and Beijing continue creating business challenges for companies with exposure to Chinese customers.
The $600 million revenue impact represents a meaningful portion of Applied Materials’ total sales. Strong demand from AI-related customers could help partially offset losses from reduced China business.
Applied Materials reported current-quarter guidance of $2.18 per share earnings at the midpoint, topping Wall Street consensus of $2.15 per share.
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