Applied Materials stock tumbles on flattish guidance; analysts remain bullish

Applied Materials Inc (NASDAQ:AMAT) reported first-quarter earnings that beat analyst estimates, but its stock slumped over 5% in premarket trading Friday as second-quarter guidance fell short of expectations.

The semiconductor equipment maker posted adjusted earnings per share of $2.38 for the quarter ended January 26, surpassing the analyst consensus of $2.28. Revenue came in at $7.17 billion, slightly above estimates of $7.15 billion and up 7% YoY.

However, Applied Materials' outlook for the current quarter disappointed investors. The company forecast second-quarter revenue of $7.1 billion, plus or minus $400 million, below the $7.198 billion analysts were expecting. It projected adjusted EPS of $2.30, plus or minus $0.18, compared to the $2.29 consensus estimate.

Stifel analysts noted that AMAT expects softness in its ICAPS segment, particularly in China, with a low-to-mid teens quarter-over-quarter decline, while stable memory and growth in advanced foundry/logic offset the weakness.

They anticipate the ICAPS/China decline to moderate and believe strength in leading-edge segments could support mid-to-upper single-digit year-over-year growth "On this basis, we do not believe Applied warrants trading at a 3-5 turn forward discount to peers and would buy the shares," analysts said.

Applied Materials reported a non-GAAP gross margin of 48.9% for Q1, up 1 percentage point YoY. Its Semiconductor Systems segment, which accounted for about 75% of total revenue, saw sales rise 9% YoY to $5.36 billion.

"We delivered strong financial performance in the first fiscal quarter, with record revenue, gross margin expansion and robust shareholder distributions," said CFO Brice Hill. He noted the company is "encouraged by the trends supporting continued customer investments to enable leading-edge technology inflections, while also taking into account export control related headwinds."

CEO Gary Dickerson highlighted the industry's drive to accelerate development of advanced compute and more sophisticated AI, saying it is "gaining momentum." He added that Applied Materials is "enabling the major device architecture inflections critical for energy-efficient AI."

The company returned $1.64 billion to shareholders in Q1 through $1.32 billion in share repurchases and $326 million in dividends.

Like Stifel, Mizuho (NYSE:MFG) analysts also shared bullish remarks after the print, highlighting that "AMAT remains the #1 global SemiCap Equipment supplier."

"We believe AMAT remains attractive as a leader and key technology enabler with strong AI spend tailwinds," they added while trimming their price target to $205 from $210.

Luke Juricic contributed to this report.

This article first appeared in Investing.com