Applied Materials (AMAT) has entered bear market territory, with shares tumbling more than 50% from their all-time high amid persistent concerns about the artificial intelligence (AI) sector. The stock is now on the verge of forming a death cross pattern, a technical signal that often precedes further declines. This risk is amplified as the company prepares to release its quarterly earnings report.
Earnings Preview
Applied Materials is scheduled to publish its fiscal fourth-quarter results this week. According to Kyro AI data, Wall Street analysts project revenue growth of approximately 51% year-over-year, reaching over $10.3 billion. The most optimistic forecast places revenue at $10.5 billion. This anticipated growth is driven by robust demand for the company's semiconductor manufacturing equipment, including deposition, etch, and rapid thermal processing tools, which are supplied to major chipmakers like TSMC, Intel, GlobalFoundries, and Samsung.
In the previous quarter, Applied Materials reported a 25% revenue increase to $9.1 billion, with net income of $2.5 billion and an operating margin of 33.7%. These figures underscore the company's strong operational performance despite the broader market downturn.
Options Market Signals Volatility
The options market is pricing in significant post-earnings volatility. Kyro AI indicates that options expiring this Friday carry an implied volatility of 121%, substantially higher than the stock's historical volatility. The put/call volume ratio stands at 0.65, while the put/call open interest ratio is 0.62, suggesting a higher number of call options relative to puts. Most call activity is concentrated at the $380 strike price, roughly 3% above the current trading level.
Historically, Applied Materials has not experienced dramatic post-earnings swings. For instance, the stock dropped about 9% after its last report, while prior announcements saw minimal movement. However, the elevated implied volatility suggests that traders anticipate a larger-than-usual reaction this time.
Analyst Sentiment Mixed
Wall Street analysts hold divergent views on the company's prospects. Morgan Stanley's Shane Brett lowered his price target from $563 to $538, while B. Riley's Craig Ellis slashed his from $700 to $475. Needham also reduced its target from $740 to $580. The average analyst price target currently stands at $625, down from $640 three months ago.
Technical Outlook: Death Cross Formation
The daily chart reveals a persistent downtrend, with AMAT falling from a June high of $740 to its current level near $369. The stock has broken below the key support level of $412, which marked its September low. More notably, the 50-day moving average is about to cross below the 200-day moving average, forming a death cross pattern. This technical indicator is often interpreted as a bearish signal, suggesting that further downside may follow.
If the decline continues, the next critical support level is at $316, the lowest point this month. A break below that could open the door to additional losses.
This article is for informational purposes only and does not constitute financial advice.
