Applied Materials' guidance didn't impress. Here's why some analysts are still upbeat.

Applied Materials reported an earnings beat but provided flat guidance for the first half of next year, causing a stock dip, primarily due to a significant decline in China revenue from U.S. trade restrictions. Despite these near-term headwinds, analysts remain optimistic, citing the company's relatively de-risked China exposure compared to peers, the temporary suspension of certain export restrictions, and strong anticipated acceleration in AI-driven demand for leading-edge chips and DRAM in the latter half of 2026, which is expected to drive future growth.

Analysis

Applied Materials (AMAT) reported a slight earnings beat but issued flat guidance for the first half of next year, leading to a 1.6% stock decline on Friday and an 8.8% drop since its November 5th high. This near-term outlook is primarily attributed to a significant 23% quarter-over-quarter decline in its China revenue, which constituted 29% of fiscal Q4 revenue and 30% of FY25 revenue, due to U.S. trade restrictions.

Despite the China headwinds, analysts view AMAT's position as relatively de-risked compared to peers like KLA Corp. and Lam Research Corp., which are seeing increased China revenue. The temporary suspension of the Affiliates Rule until November 2026 is a positive, allowing AMAT to ship $110 million in revenue in Q1 that was previously expected to be impacted in Q4. While a debate exists regarding potential share loss in China, AMAT maintains this is not the case, having been an early indicator of a slowdown in the region.

The long-term outlook remains optimistic, with analysts and management anticipating material acceleration in the second half of calendar 2026, driven by robust AI-driven demand for leading-edge chips and DRAM. CEO Gary Dickerson highlighted AMAT's strong positioning in advanced packaging solutions and leading-edge logic, supported by targeted R&D investments aimed at enabling faster and more energy-efficient transistors for future growth.

Key Decisions for Investors

• Investors should monitor AMAT's China revenue trends and the potential for stabilization in quarterly sales following the temporary suspension of export restrictions, given its relative de-risking compared to peers.
• Consider the current stock dip and flat near-term guidance as a potential entry point, weighing it against the strong anticipated acceleration in AI-driven demand for leading-edge chips and DRAM in the second half of 2026.
• Evaluate the company's strategic investments in advanced packaging and leading-edge logic as key long-term growth drivers, aligning with the broader AI build-out trend.