Applied Materials (AMAT -3%) is experiencing a market pullback, approaching its 52-week lows despite increasing its quarterly dividend by 15% and authorizing a $10 billion buyback. This buyback represents about 8% of its market cap, supplementing a previous authorization with $7.6 billion remaining. The annual dividend yield now stands at 1.2%.

AMAT's recent Q1 results exceeded expectations, but its Q2 revenue guidance of $6.7-7.5 billion fell short, indicating a slight quarter-over-quarter decline, the first since 1Q24. The updated export restrictions on China have impacted revenue projections by an estimated $400 million for FY25, leading to an 8% stock sell-off. Despite this, there are still reasons for optimism.

• AI demand remains strong. Management noted a 20% increase in global semiconductor sales last year due to AI deployment, with the market expected to surpass $1 trillion annually by 2030. AMAT is a leader in high-performance DRAM, high-bandwidth memory, and advanced packaging.
• AMAT expects related revenue growth in the +30% range for equivalent wafer fab capacity. The company has already seen positive impacts and believes it outperformed the market in ICAPS (IoT, Communications, Automotive, Power, and Sensors) end markets in 2024, excluding China.
• China poses a lasting challenge. The current administration is imposing stricter semiconductor curbs on China, further constraining U.S. companies. AMAT forecasts a $400 million revenue hit this year, with potential for further reductions due to additional restrictions.
  • Peers like ASML (ASML, Financial) and Lam Research (LRCX, Financial) report similar growth trends from China. ASML noted normal order intake, while Lam Research expects a year-over-year decline in China's revenue percentage due to spending softening and new regulations, potentially reducing revenue by $700 million.

Despite recent market declines, tech companies agree that AI demand is accelerating. While AMAT may face short-term pressure if major indices weaken, current prices offer a good entry point for long-term investors looking to benefit from AI growth.