Applied Materials delivers earnings above estimates, but Wall Street isn’t impressed

Applied Materials reported earnings per share of $3.50, which surpassed the previous year's $2.48 and exceeded Wall Street's consensus estimate of $3.40 in its third-quarter financial results. Revenue for the period climbed 25% year-over-year to $9.12 billion, outpacing the Street's target of $9 billion. CEO Gary Dickerson acknowledged the company's record-breaking quarter, attributing the success to the rapid global adoption of AI and increased demand for the company's materials engineering solutions.

For the current quarter, Applied expects revenue of approximately $10.25 billion within its guidance range, with earnings of $4.02 per share. Wall Street anticipates sales of $9.55 billion and earnings of $3.71 per share. Applied's state-of-the-art semiconductor manufacturing equipment is crucial to the chipmaking industry's efforts to expand high-end chip production capacity.

The company's semiconductor systems business revenue grew from $5.56 billion in the previous quarter to $7.04 billion, while global services revenue increased from $1.46 billion to $1.78 billion.

Although Applied's results and guidance did not impress investors, Wall Street expected revenue and earnings to be lower. CFRA analyst Brooks Idlet stated that Applied's momentum is promising and suggests room for upside if recent strength persists. Analyst Brian Chin noted that market expectations were elevated due to strong results and bullish forecasts from Applied's main rivals, Lam Research Corp. and KLA Corp., which are major suppliers in the semiconductor industry.

The three companies are competing to capture a larger share of the rapidly growing market for dynamic random access memory (DRAM), which is experiencing high global demand.

Applied's DRAM revenue accounted for 26% of its semiconductor systems revenue in the third quarter, up from 22% a year earlier. The remainder of the company's systems business includes foundry and logic equipment. Holger Mueller of Constellation Research suggested that Applied's latest results indicate an expansion of the AI chip boom, as the industry is interested in various types of processors for specific AI workloads.

Applied's forecast of over $10 billion in revenue and record revenue growth have conveyed the company's confidence in continued demand for AI chips. Applied is planning to expand its manufacturing capacity to double its semiconductor system output by 2028 and further expand capacity to support additional demand growth by 2030.