Applied Materials: Up 40% in 2025 With Room to Run Long-Term

Despite delivering a total return of 40%, some may feel that Applied Materials' (NASDAQ: AMAT) 2025 performance has been underwhelming. This comes as the tech stock has significantly underperformed many of its semiconductor equipment manufacturing peers. For example, Lam Research (NASDAQ: LRCX) has delivered an astounding 107% return.

Applied Materials just reported its latest financial results. Despite underperforming compared to its industry, Applied Materials remains a strong semiconductor manufacturing equipment play going forward. 

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AMAT Beats Low Expectations in Q4

Applied’s Q3 fiscal year 2025 (FY2025) earnings report provides essential background around its latest release. Note that Applied’s fiscal year reporting cycle is one quarter ahead of most firms. Shares fell by 14% on Aug. 15 in reaction to the report. This was due to the company providing much worse-than-expected guidance for Q4 fiscal year 2025 (FY2025), which it reported on Nov. 13. The company implied that revenue growth would fall nearly 5% from the prior year, while Wall Street forecasted 4% growth.

It also saw adjusted earnings per share (EPS) falling 9% versus expectations of an approximately 3% increase. At the same time, the outlook provided by industry peers was much more encouraging.

In Q4 FY2025, Applied performed better than expected, although not by a significant margin. Sales declined 3.5% to $6.8 billion, and adjusted EPS only fell 6.5%. Both of these figures beat estimates, but the bar for the company had already been set low.

The firm’s guidance for Q1 FY2026 also slightly exceeded expectations, but still implied significant yearly declines in both sales and adjusted EPS. Ultimately, shares eked out a minor 1% gain on Nov. 14.

China Risk Looks Subdued Moving Forward

China has been one of the biggest overhangs on Applied’s business. This comes as export restrictions significantly constrained the company’s addressable market in the country. This was particularly unfortunate because China's overall wafer fabrication equipment (WFE) spending was abnormally high. This meant Applied couldn’t take advantage of a strongly growing market.

In the future, Applied doesn’t expect new export restrictions, and it has already felt the effects of past restrictions. China's revenues are expected to continue falling in 2026 as the country works through its oversupply of equipment. However, incremental China-related risk appears limited. Applied expects total revenue to grow minimally during the first half of calendar year 2026, and then accelerate in the second half.

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Applied’s Outlook Remains Favorable Despite Underperformance

Applied’s 40% total return has very noticeably underperformed WFE peers in 2025. Below are the total returns for three of the most prominent players in this space:

• ASML (NASDAQ: ASML): 54%
• KLA (NASDAQ: KLAC): 83%
• Lam Research: 107%

 

This comes as Applied’s 4.4% last 12 months (LTM) revenue growth is at the bottom of the pack among these companies. That figure comes in between 22% and 26% for the other three. Applied’s market positioning has led it to participate in key trends less than other players.

For example, the NAND memory equipment market is expected to double in size by 2025. However, this market accounted for only 6% of Applied’s sales last quarter, compared to 18% of Lam’s sales. Leading-edge foundry and logic investment has tilted toward advanced lithography, where ASML has a near-monopoly, and Applied doesn’t compete.

This reflects the cyclical nature of the WFE industry, as different types of equipment experience strong demand at varying times. However, over time, spending across all equipment types must increase for technology to advance. Solid demand for other companies in the WFE industry supports the idea that demand will eventually flow to Applied. Applied isn’t losing its competitive edge; it’s simply going through a bit of a rough patch.

Over the past decade, all four of these companies have grown their LTM free cash flow at a compound annual rate of nearly 20%. This supports the idea that Applied’s growth can recover toward that of the other three firms over a long-term period.

The market’s understanding of this dynamic is likely why Applied has continued to appreciate significantly in 2025. Its forward price-to-earnings (P/E) ratio is near 24x. That's around 27% above its average forward P/E during the last three years. Overall, Applied certainly isn’t the value it was several months ago. Still, the company’s long-term outlook remains strong, despite a somewhat depressed near-term sentiment.

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