Applied Materials (AMAT -2.29%) has underperformed the broader semiconductor sector over the past six months, dropping more than 18% compared to flat performance for the PHLX Semiconductor Sector index over the same period. The company's latest quarterly results aren't going to help change its fortunes, either.

The supplier of chip manufacturing equipment announced results for its fiscal 2025's first quarter (ended Jan. 26) on Feb. 13. Though its revenue and earnings outpaced Wall Street's expectations, the company's tepid guidance sent the stock down 8% the following day. Let's see why that was the case.

Export controls are going to hurt, but growth is still solid

The restrictions announced by the previous U.S. administration in the past couple of months have hampered Applied Materials' Chinese business. In the words of CEO Gary Dickerson on the latest earnings conference call:

The ability of U.S. companies to serve the China market is constrained and has been further limited by updated trade rules announced in December and January. We estimate the incremental impact of these new rules will be around $400 million of revenue in fiscal 2025, approximately half of which is service revenue.

This explains why Applied Materials' revenue guidance of $7.1 billion for the current quarter is lower than the $7.22 billion consensus estimate. The good part is that Applied Materials' guidance suggests that its top line is on track to jump by almost 7% year over year in the current quarter despite the headwinds. That will be an improvement over the flat performance it delivered in the year-ago period.

What's more, the midpoint of the earnings per share guidance of $2.30 points toward a double-digit jump from the year-ago period, when Applied Materials reported an increase of just 5% in its bottom line. The company's growth in the current quarter is almost in line with what it reported in the fiscal first quarter.

Investors, therefore, seem to be missing the bigger picture. Applied Materials is navigating the restrictions on providing sales and service support to China nicely and is clocking better results than it was last year. Moreover, Applied Materials' management sees "China being a smaller portion of global wafer fab equipment spending in 2025."

Industry association SEMI is forecasting a 7% increase in semiconductor manufacturing equipment spending this year following last year's jump of 6.5%. The forecast for 2026 is even better, with an expected jump of nearly 15%. So, Applied Materials seems to have enough opportunity beyond China to grow its sales and earnings in the current fiscal year and beyond.

This is probably why Applied Materials expects its services business to clock low double-digit growth over the long run, even though its ability to serve the Chinese market is now limited. Meanwhile, the increased spending on wafer and fabrication equipment led to a 9% year-over-year increase in Applied Materials' semiconductor systems business to $5.4 billion.

As this business produces a major chunk of the company's overall revenue, it should remain a healthy growth driver going forward, thanks to the improved semiconductor spending environment discussed above.

The valuation makes the stock an attractive bet

Applied Materials trades at just 21 times trailing earnings. That's well below the tech-laden Nasdaq-100 index's earnings multiple of 34 (using the index as a proxy for tech stocks). The company has been delivering double-digit earnings growth of late, and the pickup in semiconductor spending could allow it to sustain such growth going forward.

This probably explains why analysts are forecasting slightly stronger growth in the company's bottom line following a 7% increase in the previous fiscal year to $8.65 per share.

AMAT EPS Estimates for Current Fiscal Year data by YCharts.

Prospects for the end market that Applied Materials serves suggest that it may be able to eventually outperform consensus estimates in the future, and that could lead investors to reward the stock with more upside. All this makes Applied Materials an attractive semiconductor stock to buy right now following its latest dip, as the bigger picture suggests that it has the potential to do better in the long run.