Applied Materials AMAT is scheduled to report first-quarter fiscal 2025 results on Feb. 13.

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For the fiscal first quarter, AMAT expects net sales of $7.15 billion (+/-$400 million). The Zacks Consensus Estimate for revenues is pegged at $7.16 billion, suggesting a rise of 6.7% from the year-ago quarter’s reading.

Applied Materials projects non-GAAP earnings in the range of $2.11-$2.47 per share. The Zacks Consensus Estimate for earnings is pegged at $2.28 per share, indicating growth of 7% from the year-ago quarter’s reported figure. The figure has been revised downward by a penny in the past 60 days.

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AMAT has an impressive earnings surprise history. In the last reported quarter, the company delivered an earnings surprise of 6.4%. Its earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 7.5%.

Earnings Whispers for Applied Materials

Our proven model does not conclusively predict an earnings beat for Applied Materials this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.

AMAT carries a Zacks Rank #4 (Sell) and has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Factors to Note Ahead of Applied Materials’ Q1 Results

Applied Materials’ technology leadership in leading-edge logic, compute memory or high-performance DRAM, stacking technology and advanced packaging is expected to have helped it capitalize on the growing proliferation of artificial intelligence (AI), which is the main reason behind the rebound in the semiconductor industry over the past year.

Increasing demand for sophisticated chips required to power AI-centric data centers is expected to have aided the performance of the company’s Semiconductor Systems segment in the fiscal first quarter. Its strong capabilities in logic and solid position in DRAM patterning are likely to have acted as boons. Its patterning systems and technologies, which are designed to address the shrinking pattern dimension challenges and the growing complexity in vertical stacking, are likely to have benefited the segment.

AMAT’s manufacturing equipment, which helps improve the performance, power, yield and costs of semiconductor devices that serve the IoT, communications, automotive, power and sensors markets, is likely to have contributed well to the top-line growth of the segment.

However, escalating tensions between the United States and China do not bode well for semiconductor companies. This is likely to have hindered the top-line growth of the segment. Changes in the spending patterns of key customers and supply-chain constraints are likely to have been other headwinds. For the first quarter of fiscal 2025, the company’s sales projection for Semiconductor Systems is pegged at $5.3 billion. The Zacks Consensus Estimate is pegged at $5.31 billion, indicating growth of 8.2% from the year-ago quarter’s actual.

Applied Materials’ growing 200-millimeter business and solid momentum among long-term service agreements are likely to have driven sales growth in its Applied Global Services (“AGS”) segment in the quarter under review. Strengthening of the subscription business is likely to have been another tailwind. For the first quarter of fiscal 2025, Applied Materials’ projection for AGS sales is pegged at $1.65 billion. The Zacks Consensus Estimate is also pegged at $1.65 billion, indicating growth of 11.7% from the year-ago quarter’s reported figure.

However, weak spending in the LCD equipment market is likely to have hurt Applied Materials’ Display and Adjacent Markets segment sales in the to-be-reported quarter. For the first quarter, it projects revenues of around $175 million from this segment. The consensus mark for the Display and Adjacent Markets segment’s first-quarter revenues is also pegged at $175 million, implying a year-over-year decline of 28.3%.

Applied Materials’ Price Performance & Valuation

Applied Materials shares have declined 1% over the past year, underperforming the Zacks Electronics – Semiconductors industry, which has gained 47.3% over the same time frame. Compared with other industry peers, AMAT has underperformed Broadcom AVGO, Marvell Technology MRVL and Cirrus Logic CRUS.

One-Year Price Return Performance

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Let us now look at the value Applied Materials offers to its investors at current levels. AMAT is currently trading at a discount with a forward 12-month price-to-earnings (P/E) of 19.13X compared with the industry’s 33.48X. Industry peers, such as Broadcom, Marvell Technology and Cirrus Logic, have a forward 12-month P/E of 35.47X, 41.31X and 32.35X, respectively.

Forward 12-Month P/E Ratio

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Investment Thesis on Applied Materials

Applied Materials’ business continues to be on a growth trajectory with significant design wins. It is well-poised to capitalize on the technology-inflection-led growing demand for next-generation chips on the back of its product innovations and leadership in leading-edge logic, compute memory, high bandwidth memory and advanced packaging. Given that AI has become mainstream in several industries and sectors, the company’s strategic pivot toward technology is a major positive.

However, Applied Materials faces near-term challenges that could impact its stock. The U.S.-China trade tensions, particularly the restrictions on high-tech exports to China, have created uncertainties for companies operating in the semiconductor industry. AMAT’s reliance on China for a significant portion of its revenues makes it vulnerable to geopolitical risks, especially as China pushes for self-sufficiency in critical industries like semiconductors.

Conclusion: Sell AMAT Stock for Now

Applied Materials has the right mix of innovation and market positioning to thrive in the AI-fueled semiconductor boom. Its leadership in advanced chip manufacturing, combined with the steady expansion of its service business, provides strong growth avenues. However, macroeconomic risks, geopolitical tensions and weakness in its display business pose near-term headwinds. With first-quarter earnings around the corner, investors should wait for a clearer view of the stock.

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