Financial Report: Applied Materials Beats Expectations but Stock Drops 5% on Higher Investor Expectations

Applied Materials (AMAT-US) reported better-than-expected financial results and guidance, but the market reaction was lukewarm, with the stock dropping more than 5% after hours on Thursday (13th). This indicates that investors have higher expectations for the company, which plays a key role in the AI boom and has seen its stock price more than double over the past year.

Q3 (ended July 26) Key Financial Figures vs. Analyst Expectations

Revenue: $92.1 billion (up 25% YoY) vs. $90 billion

Non-GAAP EPS: $3.50 vs. $3.42

Adjusted Gross Margin: 50.4%

Q4 (ended October) Key Guidance vs. Analyst Expectations

Revenue: $103 billion vs. $96.2 billion

Non-GAAP EPS: $4.02 vs. $3.72

Adjusted Gross Margin: 50.4% (same as Q3) vs. 50.15%

Applied Materials is the largest semiconductor equipment manufacturer in the U.S. and is seen as a bellwether for the health of the semiconductor industry because chip manufacturers purchase its equipment when they need to expand capacity. As the industry faces shortages of memory chips and other components, Applied Materials' customers, such as SK Hynix (SKHY-US) and Micron Technology (MU-US), are accelerating the construction of new production facilities.

Applied Materials CEO Gary Dickerson said the company is expanding production capacity as quickly as possible. He is very optimistic about the outlook for the next year, as customers are currently asking Applied Materials to increase production to obtain equipment faster. Based on future quarterly order forecasts from customers, he believes 2027 will be another year of strong growth.

Dickerson said, "They have been asking us to increase capacity. Our customers are very creative; they are looking for more cleanroom space, so they are also asking for equipment to be delivered faster."

Applied Materials CFO Brice Hill also said, "We expect revenue to continue to grow strongly in the second half of the year, particularly in DRAM, advanced process logic chips, and advanced packaging."

Applied Materials expects its packaging business revenue to grow by more than 70% in 2026, higher than the previous estimate of more than 50%.

Hill revealed in the earnings call, "Customers are giving us longer visibility into demand than in the past, with some discussions already extending to 2030."

However, with Applied Materials' stock price on a continuous rise, more than doubling this year, it is now more difficult for the company to exceed market expectations with its financial results.

Applied Materials dropped 5% after hours on Thursday, having earlier closed at $534.54 per share in New York's regular trading session, down 2.5%.

Stifel analyst Brian Chin said that with peers Lam Research (LRCX-US) and KLA Corporation (KLAC-US) recently reporting strong financial results and forecasting continued revenue growth, market expectations for Applied Materials have been raised. KLA Corporation's stock also fell after reporting earnings last month, with the company's financial results generally in line with analyst expectations but with free cash flow performance falling short of expectations.

CFRA analyst Brooks Idlet said that while Applied Materials' financial results and guidance were not enough to wow Wall Street, the overall performance was still quite solid because the company's growth momentum is clearly continuing to improve.

Idlet said, "We believe that if the recent strong momentum continues, there is still room for upward revision of the 2027 market consensus estimate."