AMAT Q2 Deep Dive: Strong Results Overshadowed by Weaker China Outlook and Demand Uncertainty

Semiconductor machinery manufacturer Applied Materials (NASDAQ:AMAT) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 7.7% year on year to $7.30 billion. On the other hand, next quarter’s revenue guidance of $6.7 billion was less impressive, coming in 8.2% below analysts’ estimates. Its non-GAAP profit of $2.48 per share was 5.1% above analysts’ consensus estimates.

Is now the time to buy AMAT? Find out in our full research report (it’s free).

StockStory’s Take

Applied Materials delivered a better-than-expected second quarter, but the market responded negatively amid growing concerns about future demand visibility—particularly in China. Management attributed quarterly strength to robust demand for semiconductor systems and services, with CEO Gary Dickerson highlighting "record performance" driven by investments in advanced chip manufacturing and ongoing customer engagement. However, management was clear that the positive results were partly offset by uneven demand patterns and mounting external uncertainty, especially around Chinese capacity digestion and the impact of export license restrictions.

Looking ahead, Applied Materials issued a cautious revenue forecast for the next quarter due to persistent uncertainties in China and nonlinear demand from leading-edge chipmakers. CFO Brice Hill noted, “We are seeing customers take longer to commit to orders, leading to a shorter visibility window.” Management pointed to ongoing geopolitical and trade policy risks, as well as the timing of major customer investments, as key variables shaping the near-term outlook. The company continues to prioritize investments in AI-enabling technologies, but acknowledged that quarterly growth may remain uneven until these issues stabilize.

Key Insights from Management’s Remarks

Management anchored their discussion on the interplay of strong technology demand and near-term macro headwinds, citing China and advanced logic as primary sources of uncertainty for the outlook.

• China demand digestion: The company noted that recent strength in China was expected to subside, with Brice Hill, CFO, explaining that “lower business, especially given the restrictions in our Q4 guide, much like we experienced in Q2,” is anticipated due to capacity digestion following significant investments in 2023 and 2024.
• Advanced logic and DRAM momentum: Applied Materials reported sustained growth in leading-edge logic and memory technologies, with revenue from metal deposition and etch businesses benefiting from the industry’s transition to advanced nodes like gate-all-around transistors and high-bandwidth memory (HBM). CEO Gary Dickerson highlighted that “our strength in DRAM supported record results for our etch business.”
• Service business durability: The Applied Global Services unit continued its 24-quarter streak of year-over-year growth, supported by a high proportion of subscription-based services and comprehensive agreements for advanced chip manufacturing, demonstrating resilience even during periods of equipment order volatility.
• Backlog of export licenses: Management disclosed a mounting backlog of export license applications related to China, adopting a conservative outlook by assuming no approvals for the coming quarter. This reflects ongoing trade and policy uncertainties affecting both near-term revenue and supply chain planning.
• Market share gains in packaging: The company emphasized its leading position in advanced chip packaging—critical for AI and high-performance computing—anticipating that this segment will more than double in size over the next few years, supported by new product wins and expanded customer collaboration.

Drivers of Future Performance

Management expects several headwinds to impact upcoming revenue and profit trends, largely driven by external policy factors and shifts in customer investment timing.

• Continued China uncertainty: Management said the digestion of capacity in China, combined with a conservative stance on export license approvals, will suppress sales from the region for the next several quarters. CFO Brice Hill remarked that “the business will be less than 2024” until utilization rates improve and regulatory clarity returns.
• Nonlinear leading-edge demand: The outlook for advanced foundry and logic business remains positive over the long term, but near-term growth is expected to be uneven. Management cited delayed capital commitments and increased concentration among leading-edge customers, making quarterly demand patterns more volatile and reducing order visibility.
• AI-driven investments and packaging: Despite near-term volatility, Applied Materials continues to invest in technologies enabling AI, including advanced packaging and backside power architectures. CEO Gary Dickerson expects these inflections to expand the company’s addressable market and drive incremental market share over the next several years.

Catalysts in Upcoming Quarters

In future quarters, the StockStory team will be monitoring (1) the trajectory of China-related equipment sales and progress on pending export license approvals, (2) the timing and scale of major customer investments in new logic and memory production nodes, and (3) developments in advanced packaging and AI-enabling product launches. Execution in these areas will be key to sustaining growth during a period of heightened industry and policy uncertainty.

Applied Materials currently trades at $162.35, down from $188.16 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).

Stocks That Trumped Tariffs

Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.