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Applied Materials (AMAT -3%) gets swept up in the broader market pullback today as it flirts with 52-week lows despite raising its quarterly dividend by 15% and authorizing $10 bln for repurchases. Following the hike, AMAT's annual dividend yield is 1.2%. Meanwhile, its $10 bln buyback program translates to around 8% of its market cap. It also supplements its previous authorization, which had roughly $7.6 bln remaining.

AMAT recently reported decent Q1 (Jan) results, clearing top and bottom-line estimates. However, its Q2 (Apr) revenue guidance of $6.7-7.5 bln was somewhat lighter than expected, with the midpoint representing a minor qtr/qtr contraction, AMAT's first since 1Q24. Updated export restrictions on China proved the culprit, slashing an estimated $400 mln in revenue in FY25 (Oct). While the China-related setback had a meaningful impact on the stock, which sold off by over 8%, there are still many reasons to take a more optimistic view.

• AI demand remains elevated. Management mentioned last month that early AI deployment underpinned an approximately 20% jump in global semiconductor sales last year, with the market staying on track to surpass $1 trillion in annual revs by 2030. Several themes are emerging due to the AI boom, including surging demand for high-performance DRAM, high-bandwidth memory, and advanced packaging. AMAT touts a leadership position across these areas.
• AMAT anticipates related revenue to eventually rise in the +30% range for the equivalent wafer fab capacity. The company noted that the bulk of spending on the aforementioned themes has yet to unfold. Still, it has already observed a positive impact, believing it outperformed the market across these themes and within ICAPS (IoT, Communications, Automotive, Power, and Sensors) end markets in 2024, excluding China.
• China is shaping up to be a lasting headwind. The current administration is seeking more restrictive semiconductor curbs in China on top of the previous administration's initial controls, which already eroded China-related sales. AMAT commented that the ability of U.S. companies to serve China remains constrained, further limited by updated results announced in December and January. While AMAT forecasted a $400 mln hit to revenue this year, sales may be clipped further on additional restrictions.
  • While not using the same language as AMAT, its peers project a similar normalized pace of growth from China in 2025. For instance, in January, ASML (ASML) remarked that it has been experiencing a normal order intake for the region recently. Similarly, Lam Research (LRCX) stated last week that China's total percentage of revs this year will be down yr/yr, partly due to some softening in spending and new regulations, which are expected to clip $700 mln off revs.

Even though markets have been pulling back sharply over the past few weeks, the consensus from prominent tech firms over that period has been that AI demand continues to accelerate. AMAT may endure some downward pressure over the near term, particularly if the major indices continue to weaken. However, current prices offer a decent entry point for long-term investors wanting to capitalize on the immovable AI-related tailwind.