Applied Materials (NASDAQ: AMAT) shares have slipped for a second straight session as traders position ahead of the company's fiscal third-quarter earnings report due Thursday. The stock was hovering near $525 on Tuesday, roughly 30% below its year-to-date peak of $740.
The upcoming print will be a critical test for the semiconductor equipment maker, which has been a major beneficiary of the artificial intelligence infrastructure boom. Investors are looking for fresh signals on demand trends, margin trajectory, and management's outlook for the rest of the year.
AI-driven demand remains the core growth engine
Applied Materials doesn't manufacture chips itself, but it supplies the advanced tools that chipmakers like Taiwan Semiconductor, Intel, and GlobalFoundries rely on to produce their devices. Its product portfolio includes deposition systems, etching tools, ion implantation equipment, and chemical mechanical planarization (CMP) solutions.
The company's business has been thriving amid the AI capex supercycle, with major foundries and memory makers expanding capacity. Additionally, the ongoing buildout of data centers in the U.S. — with projects from companies like Tesla and TSMC — is expected to sustain demand for its equipment.
In the most recent quarter, Applied Materials reported revenue of $7.9 billion, up 11% year over year. Gross margin crossed the 50% threshold for the first time, supported by favorable pricing and manufacturing cost efficiencies. Operating margin also expanded to 32.7% from 30.7% in the prior-year period.
Earnings expectations and valuation
Wall Street consensus projects revenue of $8.95 billion for the quarter, representing 23.3% year-over-year growth. For the following quarter, analysts see revenue accelerating to $9.54 billion. Full-year revenue is expected to rise about 18% to $33.2 billion.
Earnings per share are forecast to jump to $3.39 from $2.48 in the same quarter last year. A stronger-than-expected result would help justify the stock's valuation, which currently sits at a forward price-to-earnings ratio of 42 — roughly double its five-year average of 21.
Investors also took note of Nvidia's recent $500 billion financing arrangement with major financial institutions, which is designed to fund purchases by Nvidia's customers. That deal is seen as a positive for the broader semiconductor supply chain, including Applied Materials.
Technical analysis: key levels to watch
The daily chart shows AMAT has rebounded from a low of $434 on July 29, climbing back above the $500 Murrey Math pivot level. The stock has also formed a small inverted head-and-shoulders pattern, which often signals a potential bullish reversal.
If the bullish setup holds, the stock could rally toward the next pivot resistance at $625, representing roughly 20% upside from current levels. On the downside, a decisive break below $450 would invalidate the bullish thesis and open the door to further declines.
As earnings approach, options markets are pricing in elevated volatility. Similar setups have been seen in other semiconductor names, such as SMCI's margin recovery test and Coherent's post-run earnings challenge. For Applied Materials, the outcome will hinge on whether the company can deliver on the high expectations embedded in its valuation.
Investors will also be watching for any commentary on the sustainability of AI-driven orders, potential supply chain constraints, and the pace of capacity additions in the U.S. and abroad.
This article is for informational purposes only and does not constitute financial advice.
