Why Applied Materials Stock Is Sliding Today

Shares of Applied Materials (NASDAQ: AMAT), the nation's biggest manufacturer of semiconductor equipment, dropped today after it offered disappointing guidance in its fourth-quarter earnings report due to weakness in China.

The news had a similar effect on others in semiconductor manufacturing, including ASML, showing headwinds across the broad industry.

As of 10:41 a.m. ET, the stock was down 8.5%.

Image source: Getty Images.

Still waiting for the cycle to turn

Applied Materials, which makes a wide range of products used in semiconductor manufacturing, solar, and electronics, said that revenue in the quarter rose 5% to $7.05 billion, which was ahead of estimates at $6.97 billion.

Margins held steady in the quarter as gross margin rose from 47.1% to 47.3%, though operating margin ticked down from 29.3% to 29%. Overall, those results indicate a stable pricing and cost environment for Applied Materials. On the bottom line, adjusted earnings per share rose 9% to $2.32, which beat estimates at $2.19.

Despite the sluggish growth, CEO Gary Dickerson talked up the company's future, saying, "Our portfolio of products and services uniquely positions us to enable our customers in their pursuit of AI and energy-efficient computing."

What's next for Applied Materials?

The tech cold war with China appears to be weighing on Applied Materials' growth prospects. The company is in the process of pulling business out of the country to comply with new regulations that forbid sharing advanced semiconductor technology with China.

Overall guidance for the fiscal first quarter called for revenue between $7.11 billion and $7.19 billion, which was below the consensus at $7.25 billion and implies just 6.5% revenue growth at the midpoint. The company expects core revenue growth of 8%-12% but sees a 28% drop in display revenue due to headwinds in China.

On the bottom line, its forecast of $2.11-$2.47 was slightly better at the midpoint of $2.29 than the consensus at $2.27.

Given the disappointing revenue guidance, the sell-off is understandable, but Applied Materials still looks like a good long-term bet.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML and Applied Materials. The Motley Fool has a disclosure policy.