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For the fifth consecutive quarter, Applied Materials (AMAT -8%) cleared earnings and sales estimates in Q4 (Oct) and projected Q1 (Jan) numbers consistent with analyst forecasts. However, despite this steady string of performance from the semiconductor equipment supplier, AMAT is slipping toward September lows.

Ahead of AMAT's report, warning signs were flashed by counterpart ASML (ASML) with its dismal Q3 (Sep) report and gloomy FY25 (Dec) outlook, prompted by a sour combination of a sluggish recovery pace across end markets outside of AI and worries over further export restrictions on advanced chips to China. This injected unease into the market, disproportionately affecting ASML's closest peers, including AMAT, as well as KLA Corp (KLAC), Lam Research (LRCX), and NXP Semi (NXPI).

Given this context, investors find AMAT's Q4 report inadequate, particularly surrounding its Q1 (Jan) guidance. AMAT projected revenue of $6.75-7.55 bln, the midpoint falling shy of analyst estimates. China is a factor in the relatively underwhelming outlook. Revenue from the region dropped to 30% in the quarter, down 2 pts sequentially and 10 pts from Q2 (Apr) levels when AMAT was shipping to outsized DRAM demand, reflecting a quick shift in economic conditions. AMAT anticipates China revs to hover around 30% for the near term. Meanwhile, uncertainty hangs over AMAT as potentially tighter export restrictions loom given the upcoming change in the U.S. administration, which could push revenue from China even lower.

• The future demand for AI is less uncertain. AMAT reiterated that the most significant tectonic shift is AI and its virtually endless applications, which boast the potential to transform nearly every aspect of the global economy. AMAT noted that deploying AI at this large scale requires an estimated 10,000x jump in computing performance per watt, an efficiency target the company is positioned to deliver over the long haul.
• AI remained central to AMAT's consistent outperformance in Q4, supporting its 4.8% jump in revs yr/yr to $7.04 bln and 8.9% improvement in adjusted EPS to $2.32. Foundry/logic sales jumped 12% as investments for Gate-All-Around -- a transistor design allowing for improved performance and lower power consumption, perfect for AI -- continued to swell. On the services side, revenue climbed by 11% to a record $1.64 bln.
• However, like its peers, markets outside AI did not fare as well. DRAM sales slid by 10%, reflecting the normalized mix of China revenue. Meanwhile, NAND sales were unchanged from last year. Also, ICAPS sales, which serve customers across IoT, communications, auto, power, and sensor markets, inched lower. Lastly, AMAT's relatively small Display business plunged by 29%, underscoring persistent weakness within the consumer electronics market.

AMAT's Q4 report contained bright spots, including healthy AI-related demand and management's confidence in wafer fab equipment spending enjoying another year of growth in 2025. However, given the uncertainty across the macroeconomic and geopolitical landscape, the company's Q1 guidance fell short of alleviating current unease. We mentioned in our preview that China could pose a sticky headwind as its economy languishes and U.S./China relations remain brittle. Without AMAT issuing a rosier near-term outlook, this overhang may persist, producing volatility over the next few months.