How Are Export Restrictions Impacting Applied Materials Stock?
Applied Materials (NASDAQ:AMAT) stock declined by about 8% in Friday’s trading although it has gained about 3% year-to-date in 2025. In comparison, Applied’s semiconductor industry peer Texas Instruments stock (NASDAQ:TXN) has declined by 2% since the start of this year. So what are some of the trends that have impacted Applied Materials’ stock?
Weak Guidance, China Headwinds
Applied posted better-than-expected Q1 FY’25 results, with revenues growing 7% and adjusted earnings rising 12% year-over-year to $2.38 per share. However, the company’s Q2 revenue guidance of $7.1 billion, which marks a growth over FY’24, still came in below expectations. Applied has attributed this to weakness in its exports business due to trade restrictions. The U.S. government has imposed tighter restrictions on the sale of leading-edge chipmaking equipment to Chinese companies, and Applied estimates a $400 million revenue hit from these restrictions over the current fiscal. Moreover, about half of this impact will be felt in Applied’s services business, which calibrates and maintains equipment. Beyond trade restrictions, Applied noted that the recent orders from memory manufacturers in China has subsided in 2025. Applied’s high exposure to China has been a long-standing concern. In Q1 FY’25, the Chinese market accounted for 31% of total revenue, down from 45% in Q1 FY’24.
Image by Amol Sharma from Pixabay
AI Upside
However, Applied can offset some of these headwinds driven by a rising mix of higher-end equipment driven by applications such as AI and the shift to more advanced process technologies. The generative AI boom is driving up semiconductor demand given the need for more computational power, higher memory capacity, and more complex chips. AI also requires high-bandwidth memory and advanced chip packaging. The company is diversified across the semiconductor production value chain, offering tools and services that span materials engineering, process control, and integration. With the AI trend, the semiconductor industry is beginning to adopt advanced technologies like gate-all-around transistors and backside power delivery, which enhance chip performance and efficiency, especially for AI applications. Applied, which has invested in these technologies ahead of rivals, could gain share as the AI market grows. This AI boom is also helping Applied’s margins. Gross margins rose 100 basis points year-over-year to 48.9% in Q1 FY’25.
The increase in AMAT stock over the last 4-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 84% in 2021, -38% in 2022, 68% in 2023, and 1% in 2024. The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period.
Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could AMAT face a similar situation as it did in 2022 and 2024 and underperform the S&P over the next 12 months – or will it see a strong jump?
We value Applied Materials stock at $215 per share, about 27% ahead of the current market price. We are in the process of updating our model to account for Q1 earnings. See our analysis of Applied Materials Valuation for a closer look at what is driving our price estimate for the stock. See our upside scenario of How Applied Materials Stock Can Surge To $350
| Returns | Feb 2025 MTD [1] |
Since start of 2024 [1] |
2017-25 Total [2] |
| AMAT Return | -6% | 5% | 474% |
| S&P 500 Return | 1% | 28% | 173% |
| Trefis Reinforced Value Portfolio | -2% | 21% | 719% |
[1] Returns as of 2/18/2025
[2] Cumulative total returns since the end of 2016
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