Should You Buy, Sell or Hold Applied Materials Stock Post Q2 Earnings?
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Applied Materials AMAT shares have lost 5.3% since it reported financial results for the second quarter of fiscal 2025 on May 15. Though the company’s second-quarter top and bottom lines surpassed the Zacks Consensus Estimate, declining revenues in the Chinese market weighed on the investors’ sentiments.
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The year 2025 has remained highly volatile for AMAT stock, with its share price rising mere 1.9% year to date. The stock has also underperformed other semiconductor players, including Lam Research LRCX, KLA Corporation KLAC and ASML Holding ASML.
The underperformance of AMAT’s share price, along with concerns related to China sales prospects, raises the question: Should investors buy, hold or sell AMAT stock?
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Declining China Sales: A Key Concern for AMAT’s Prospects
A major headwind for Applied Materials is increasing U.S.-China tensions and export restrictions on semiconductor manufacturing equipment. China remains a crucial market for Applied Materials, accounting for a significant portion of total revenues. However, U.S. government restrictions on selling advanced semiconductor equipment to Chinese manufacturers are hurting Applied Materials’ sales and growth outlook.
In the second quarter of fiscal 2025, Applied Materials’ China sales plunged 37.3% year over year to $1.77 billion. China market’s contribution to total revenues also shrank to 25% from the year-ago quarter’s 43%. This marked the third consecutive quarter of a year-over-year fall in China revenues.
Earlier, management had acknowledged that the company faces elevated uncertainty in China due to ongoing geopolitical tensions and regulatory scrutiny. If stricter export controls are imposed, Applied Materials’ long-term revenue potential could take a hit, as Chinese chipmakers are forced to turn to domestic alternatives or non-U.S. suppliers.
However, despite the headwinds, AMAT has several upsides that enable the company to perform well.
AMAT Leads the Market With Superior Technology
Applied Materials is well-positioned to capitalize on the demand for AI-driven semiconductors that has become the driving force for this industry. AMAT has made significant strides in cutting-edge chip manufacturing, particularly in gate-all-around (GAA) transistors, high-bandwidth memory and advanced packaging. These innovations are critical to enabling faster, more energy-efficient AI processing.
Applied Materials’ revenues from advanced semiconductor nodes surpassed $2.5 billion in fiscal 2024, and management expects this figure to double in fiscal 2025. The transition from FinFET to GAA transistors is expanding AMAT’s total addressable market by 15%, while Applied Materials’ revenues in this segment are projected to grow 30% per wafer fab capacity expansion. The company is also on track to secure more than 50% of the market share in GAA and backside power delivery, solidifying its leadership in the AI computing era.