Key Takeaways Applied Materials trades at 16.69X forward P/E, well below the industry's 34.47X multiple.AMAT faces U.S.-China export curbs, hurting sales and adding uncertainty in a key market.Shares lag industry returns and trade below 200- and 50-day SMAs, signaling bearish momentum.Applied Materials (AMAT) stocks are trading at a forward 12-month P/E of 16.69X, which is lower than the Zacks Electronics - Semiconductors industry’s P/E of 34.47X. Although AMAT appears to be discounted, let's delve deeper i ...

Core Viewpoint - Applied Materials issued an earnings warning that negatively impacted KLA stock, indicating potential challenges in the semiconductor industry [1][5]. Group 1: Earnings Performance - Applied Materials reported an 8% year-over-year sales growth for fiscal Q3, with profit margins and earnings per share also increasing by 8% [3]. - For Q4, Applied Materials expects earnings of $2.11 per share, reflecting a 15% sequential decline, contrary to Wall Street's expectations for an increase [4]. Group 2: Market Conditions - The decline in Q4 guidance from Applied Materials is attributed to a "dynamic macroeconomic and policy environment," leading to increased uncertainty and lower visibility [5]. - Sales weakness in China was specifically highlighted, with the country still "digesting" previously purchased semiconductor manufacturing equipment [5]. Group 3: Impact on KLA - KLA derives approximately 33% of its sales from China, similar to Applied Materials' 37%, suggesting that KLA will likely face similar challenges due to the negative news affecting Applied [6]. - KLA's stock is currently priced at 31 times earnings, indicating a significant potential decline in value in light of the adverse news [6].

Core Insights - Applied Materials reported strong fiscal Q3 earnings, with earnings per share (EPS) of $2.48 and sales of $7.3 billion, exceeding analyst expectations of $2.36 EPS and $7.2 billion in sales [1][3] - Despite the strong Q3 performance, the company issued a disappointing Q4 guidance, projecting adjusted EPS of $2.11 and a sequential sales decline of approximately 8% to around $6.7 billion [4][5] Financial Performance - Q3 sales increased by 8% year over year, and operating profit margin improved by nearly 2 percentage points [3] - Net income grew by only 4%, with EPS growth matching sales growth at 8% [3] - GAAP EPS was reported at $2.22, significantly lower than the adjusted EPS of $2.48 [3] Future Outlook - The company attributed the lowered Q4 guidance to a "dynamic macroeconomic and policy environment," which has created increased uncertainty and lower visibility [5] - Concerns were raised regarding the "digestion of capacity" in China, which had previously stocked up on semiconductor manufacturing equipment [5] - Purchasing activity from leading-edge customers is described as "lumpy," further complicating sales growth [5] Valuation Considerations - With a trailing P/E ratio of 23, Applied Materials stock may not appear overly expensive; however, potential sales shrinkage raises concerns about the stock's valuation [6]

Core Viewpoint - Applied Materials' warning about declining revenue and profits in Q4 2025 has negatively impacted Lam Research's stock performance, raising concerns among investors about potential similar outcomes for Lam [1][4][6] Group 1: Applied Materials Performance - Applied Materials reported Q3 fiscal 2025 earnings of $2.48 per share on sales of $7.3 billion, exceeding analyst expectations of $2.36 per share and $7.2 billion in sales [3] - However, the company projected Q4 profits to drop to approximately $2.11 per share, below Wall Street's forecast of $2.38 per share [4] - Q4 revenue is expected to decline to $6.7 billion, an 8% decrease compared to Wall Street expectations, attributed to "digestion of capacity in China" and "non-linear demand from leading-edge customers" [5][6] Group 2: Impact on Lam Research - Lam Research's stock fell by 6.9% following Applied Materials' announcement, reflecting investor concerns about the semiconductor equipment market [1][6] - The current valuation of Lam Research at 26 times earnings raises questions about its attractiveness as an investment, suggesting it may be time for investors to consider selling [6]

Over the past weeks, important players in the semiconductor industry have reported earnings, with several names putting Wall Street estimates to shame. This caused analysts to lift their price targets significantly.  These updates hint that the semiconductor rally may still have legs, especially as end-market demand improves and long-term themes like AI and automation remain intact. Below, we highlight four companies whose recent earnings and revised analyst outlooks stand out. Get Lam Research alerts:Lates ...

Summary of U.S. Semiconductors and Semiconductor Capital Equipment Conference Call Industry Overview - The focus of the conference call is on the U.S. semiconductor industry and the implications of Section 232 investigations initiated on April 1, 2025, which may impose tariffs on non-U.S. semiconductors and semiconductor capital equipment [1][11][29]. Key Points and Arguments 1. **Section 232 Investigation**: The ongoing investigation aims to assess the national security implications of semiconductor imports, with a report expected soon [1][11][30]. 2. **Tariff Mechanisms**: Potential tariff mechanisms could include component-level tariffs, which would incentivize the use of U.S.-manufactured semiconductors by rebating the value of U.S.-made components against tariffs on imported chips [3][55]. 3. **Impact of Tariffs**: Rough estimates suggest that tariffs could raise tens of billions of dollars, potentially increasing device costs by hundreds of dollars each [4][61]. 4. **Beneficiaries of Tariffs**: Companies with significant domestic manufacturing footprints, such as Texas Instruments (TXN) and Intel (INTC), are likely to benefit from these tariffs [4][62][63]. 5. **Current Semiconductor Imports**: The U.S. imported approximately $45 billion in semiconductors in 2024, primarily from Taiwan and Malaysia, but the majority of semiconductor content enters the U.S. through finished products [3][34][41]. 6. **Device Composition**: Many devices, such as smartphones and PCs, have high semiconductor content, which could make component-level tariffs more effective in reshoring semiconductor manufacturing [35][51]. 7. **Challenges in Implementation**: Implementing component-level tariffs poses logistical challenges, including defining the country of origin for semiconductors and tracking the supply chain of components [57][58]. Additional Important Content - **Historical Context**: Section 232 investigations have been used historically to protect national security, with a focus on various industries, including semiconductors [16][18]. - **Legal Framework**: The legal basis for tariffs is rooted in the U.S. Constitution and various acts that grant the President authority to impose tariffs under specific circumstances [12][23]. - **Investment Implications**: The call discusses the investment implications for various semiconductor companies, with ratings and target prices provided for companies like AMD, ADI, AVGO, INTC, NVDA, NXPI, QCOM, and TXN [5][6][9][10][62]. Conclusion - The U.S. semiconductor industry is at a critical juncture with the potential for significant tariff implementations that could reshape the competitive landscape. Companies with strong domestic manufacturing capabilities are likely to emerge as winners, while the overall impact on device costs and demand remains uncertain.

Company Overview - Onto Innovation (ONTO) ended the recent trading session at $96.95, showing a -1.77% change from the previous day's closing price, which is less than the S&P 500's daily loss of 0.01% [1] - Prior to today's trading, shares of Onto Innovation had gained 1.78%, lagging behind the Computer and Technology sector's gain of 7.44% and the S&P 500's gain of 5.37% [1] Financial Performance - Onto Innovation is projected to report earnings of $1.27 per share, representing a year-over-year decline of 3.79%, with a consensus estimate for revenue of $249.75 million, up 3.06% from the prior-year quarter [2] - Full-year Zacks Consensus Estimates call for earnings of $5.14 per share and revenue of $994.52 million, indicating year-over-year changes of -3.75% and +0.73%, respectively [3] Analyst Insights - Recent revisions to analyst forecasts for Onto Innovation are important as they reflect changing business trends, with positive alterations indicating analyst optimism regarding the business and profitability [3] - The Zacks Rank system, which ranges from 1 (Strong Buy) to 5 (Strong Sell), currently ranks Onto Innovation at 3 (Hold), with the Zacks Consensus EPS estimate remaining stagnant over the past month [5] Valuation Metrics - Onto Innovation has a Forward P/E ratio of 19.22, which shows no noticeable deviation compared to its industry's Forward P/E of 19.22 [6] - The company has a PEG ratio of 0.64, indicating a favorable valuation relative to its expected earnings growth rate, consistent with the average PEG ratio of nanotechnology stocks [7] Industry Context - The Nanotechnology industry, part of the Computer and Technology sector, holds a Zacks Industry Rank of 92, placing it in the top 38% of all 250+ industries [8] - Research indicates that the top 50% rated industries outperform the bottom half by a factor of 2 to 1 [8]

Company Performance - Onto Innovation's stock decreased by 1.08% to $101.76, underperforming the S&P 500's loss of 0.33% on the same day [1] - Over the past month, Onto Innovation's stock has increased by 2.87%, which is lower than the Computer and Technology sector's gain of 5.24% and the S&P 500's gain of 4.07% [1] Upcoming Earnings - Onto Innovation is expected to report earnings of $1.27 per share, reflecting a year-over-year decline of 3.79% [2] - The consensus estimate for revenue is $249.75 million, which represents a 3.06% increase from the prior-year quarter [2] Full Year Projections - For the full year, earnings are projected at $5.14 per share, indicating a decline of 3.75% from the previous year, while revenue is expected to reach $994.52 million, showing a slight increase of 0.73% [3] - Recent revisions to analyst forecasts for Onto Innovation should be monitored, as they may indicate changes in short-term business dynamics [3] Valuation Metrics - Onto Innovation has a Forward P/E ratio of 20.03, which aligns with its industry's Forward P/E of 20.03 [6] - The company has a PEG ratio of 0.67, matching the average PEG ratio for the Nanotechnology industry [6] Industry Overview - The Nanotechnology industry is part of the Computer and Technology sector and holds a Zacks Industry Rank of 91, placing it in the top 37% of over 250 industries [7] - Research indicates that the top 50% rated industries outperform the bottom half by a factor of 2 to 1 [7]

Core Viewpoint - ASML has received a Zacks Rank 2 (Buy) upgrade, indicating a positive earnings outlook that may lead to increased buying pressure and stock price appreciation [1][3]. Earnings Estimates and Stock Price Impact - The Zacks rating system is based on changes in earnings estimates, which are strongly correlated with near-term stock price movements [4][6]. - Institutional investors often rely on earnings estimates to determine a stock's fair value, influencing their buying and selling decisions, which in turn affects stock prices [4]. ASML's Earnings Outlook - ASML is projected to earn $27.33 per share for the fiscal year ending December 2025, with no year-over-year change expected [8]. - Over the past three months, the Zacks Consensus Estimate for ASML has increased by 7.7%, reflecting a positive trend in earnings estimates [8]. Zacks Rank System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with only the top 20% receiving a "Strong Buy" or "Buy" rating [9][10]. - ASML's upgrade to Zacks Rank 2 places it in the top 20% of Zacks-covered stocks, suggesting potential for market-beating returns in the near term [10].

Core Viewpoint - Onto Innovation (ONTO) is anticipated to report a year-over-year increase in earnings and revenues for the quarter ended March 2025, with earnings expected to be $1.47 per share, reflecting a 24.6% increase, and revenues projected at $264.96 million, up 15.8% from the previous year [1][3]. Earnings Expectations - The upcoming earnings report is scheduled for May 8, and the stock may rise if the reported figures exceed expectations, while a miss could lead to a decline [2]. - The consensus EPS estimate has been revised down by 1.07% over the last 30 days, indicating a reassessment by analysts [4]. Earnings Surprise Prediction - The Zacks Earnings ESP model compares the Most Accurate Estimate to the Zacks Consensus Estimate, suggesting that recent estimate revisions may provide more accurate insights into the company's earnings potential [5][6]. - A negative Earnings ESP of -1.09% indicates that analysts have become bearish on Onto Innovation's earnings prospects, compounded by a Zacks Rank of 4, making it challenging to predict an earnings beat [10][11]. Historical Performance - Onto Innovation has a history of beating consensus EPS estimates, having done so in the last four quarters, including a surprise of +8.63% in the last reported quarter [12][13]. Conclusion - Despite the historical performance of beating estimates, Onto Innovation does not currently appear to be a strong candidate for an earnings beat, and investors should consider other factors before making investment decisions [14][16].