Core Viewpoint - Applied Materials reported Q3 results that exceeded expectations, but the stock has declined approximately 15% due to concerns about future demand, particularly from China [2] Financial Performance - Q3 revenue was $7.30 billion, a 7.7% year-over-year increase, with adjusted EPS of $2.48, both surpassing expectations [3] - Q4 guidance projected revenue around $6.70 billion and earnings of $2.11, both below analyst expectations, attributed to reduced demand for leading-edge logic equipment from China [3] Market Dependency - China contributed 35% of revenue last quarter, significantly more than the 9% from the U.S., indicating a heavy reliance on Chinese customers [4] - The geopolitical landscape, including potential tariffs, creates uncertainty for Applied Materials' customers, particularly in Asia [4] AI and Semiconductor Demand - The generative AI trend is driving increased semiconductor demand, requiring advanced manufacturing methods and higher memory capacity [5] - Applied Materials is well-positioned to benefit from this trend, with gross margins increasing by 150 basis points year-over-year to 48.9% in Q3 FY'25 [5] Valuation and Growth Outlook - Applied stock is trading at approximately 17 times forward earnings, reflecting reasonable valuation given long-term growth potential [7] - Growth rates are projected at about 4% for FY'25 and 2% for FY'26, with capital spending on advanced chip manufacturing expected to nearly double between 2023 and 2028 [7]
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