Applied Materials shares slide as China outlook darkens despite strong earnings

Applied Materials’ shares fell sharply in premarket trading on Friday, dropping more than 7%, after the chip equipment maker warned that stricter US export controls would curb spending in China next year.

The caution overshadowed stronger-than-expected quarterly results and a more upbeat outlook for artificial-intelligence-related demand.

The company posted adjusted earnings of $2.17 per share for the October quarter, beating Wall Street’s consensus estimate of $2.11, according to FactSet.

Revenue for the period rose to $6.8 billion, slightly ahead of expectations of $6.7 billion.

Applied also forecast revenue of about $6.85 billion for the current quarter, topping the average analyst estimate of $6.8 billion.

Export curbs cloud outlook for China sales

Despite the solid performance, Applied Materials continued to face headwinds from tightening US export restrictions targeting China.

Washington has intensified scrutiny of foreign firms that use subsidiaries or affiliates to circumvent chip-equipment curbs, limiting the ability of US companies to sell advanced tools to the world’s largest buyer of semiconductor manufacturing equipment.

The warnings echoed recent guidance from rivals ASML and KLA Corp, both of which flagged a deterioration in demand linked to China.

Applied’s executives said that although China remains an important market, its contribution to the company’s overall revenue has already fallen to the mid-20% range, down from nearly 40% in recent years.

Analysts said this shift would help soften the blow of any further constraints on Chinese orders.

A temporary suspension of the so-called affiliate rule following talks between US President Donald Trump and Chinese President Xi Jinping is expected to reopen about $600 million in sales this fiscal year.

Still, CEO Gary Dickerson said foreign competitors continue to sell products in China that Applied cannot, widening competitive gaps.

“The big debate remains if the departure from peers is a sign of share loss in China, but AMAT remains adamant that it is not,” analysts at Jefferies said.

Cost cuts and AI boom shape long-term expectations

Last month, Applied Materials announced plans to cut roughly 4% of its workforce in an effort to become more competitive and efficient.

The restructuring comes alongside broader industry efforts to prepare for heightened demand driven by artificial intelligence.

Dickerson said many of the company’s customers are preparing substantial expansions in chip production capacity for the second half of 2026, anticipating surging demand from AI-related computing.

Some customers expect their AI businesses to grow at an annual rate of around 40% for several years, prompting deeper collaboration with Applied to ensure supply chains and service teams can meet future requirements.

“We are well-positioned at the highest-value technology inflections in the fastest-growing areas of the market,” Dickerson said, adding that visibility into customer plans has improved significantly in recent months.

Although export controls and geopolitical uncertainty continue to weigh on near-term expectations, analysts say the long-term demand outlook tied to AI could provide a strong counterbalance for the company as global chipmakers ramp up investment in advanced manufacturing technologies.