What Happened?

Shares of semiconductor machinery manufacturer Applied Materials (NASDAQ:AMAT) fell 6% in the afternoon session after the company reported disappointing first 2025 quarter results: its revenue was in line and its inventory levels slightly increased. On the other hand, Applied Materials beat analysts' EPS and adjusted operating income estimates this quarter. Zooming out, we think this was a mixed quarter. The market seemed to be hoping for more.

The shares closed the day at $165.53, down 5.2% from previous close.

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What The Market Is Telling Us

Applied Materials’s shares are very volatile and have had 24 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 6 months ago when the stock dropped 9.2% on the news that the company reported weak third-quarter (Fiscal Q4 2024) results. Its revenue guidance for the next quarter slightly missed. Sales growth was also underwhelming during the quarter as revenue beat by a narrow margin. The company attributed some of the weakness to headwinds which impacted sales in China. Although key operating segments exceeded analysts' estimates by small margins, underlying weaknesses became more apparent when data was aggregated by product categories. Specifically, DRAM sales fell below Wall Street's estimates, declining by 10% year-on-year, given tough comparisons amid elevated purchases from China in the previous year.

Zooming out, we think this is a challenging quarter for the company. Following the results, Morgan Stanley analyst Joseph Moore lowered his price target from $185 to $179, calling out uncertainty around export controls. Moore added, "Consistent with our outlook that 2025 may not be as good as one expected 6 months ago, expectations for foundry orders from Intel and Samsung have receded, ICAPS ex-China appears to be going through a prolonged correction, and NAND has yet to recover from a very low base."

Applied Materials is up 1% since the beginning of the year, but at $165.45 per share, it is still trading 35.1% below its 52-week high of $254.97 from July 2024. Investors who bought $1,000 worth of Applied Materials’s shares 5 years ago would now be looking at an investment worth $3,044.

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