Zacks Model Flashes Green for Applied Materials Ahead of Earnings

There’s an uncomfortable question hanging over Applied Materials heading into Thursday afternoon: how does a company at the center of the AI manufacturing buildout, growing earnings above 30% and beating estimates sixteen quarters running, end up trading 25% below its high?

The answer says more about the market’s mood than about the business — but it also means this print carries unusual weight. Applied Materials reports fiscal third-quarter results after the closing bell on Thursday, and our proprietary model points to yet another beat.

The Setup Is About as Favorable as It Gets

Let’s start with the numbers. Management guided fiscal third-quarter revenues to $8.95 billion, plus or minus $500 million, with non-GAAP earnings of $3.36 per share, plus or minus 20 cents.

The Zacks Consensus Estimate for revenues sits at $9 billion, implying growth of 23.3% from the year-ago quarter, while the consensus for earnings is pegged at $3.38 — indicating a 36.3% increase from the $2.48 posted a year ago. Importantly, that earnings figure has been revised upward over the past 60 days, which is the direction you want to see heading into a print.

The company’s track record supports the setup. Applied Materials has delivered a trailing four-quarter average earnings surprise of over 6%. Last quarter’s report in May was a clean one: adjusted EPS of $2.86 against a $2.68 consensus, on revenue of $7.91 billion that grew 11.4% and topped the $7.69 billion estimate.

Our proven model predicts another earnings beat this time around. The Zacks Rank #2 (Buy) pairs with a positive Earnings ESP (Expected Surprise Prediction), reflecting a Most Accurate Estimate that sits above the consensus. When a positive Earnings ESP combines with a Zacks Rank #3 or better, our research shows a positive surprise follows roughly 70% of the time. That’s a genuine statistical edge — and it’s worth noting how rarely both indicators line up this cleanly.

What’s Driving the Business

The operational story is straightforward and, frankly, quite good. Applied Materials AMAT benefits from accelerating AI infrastructure spending and the rising complexity of semiconductor manufacturing — every additional process step at advanced nodes means more equipment.

The company’s exposure to leading-edge foundry-logic, DRAM and advanced packaging has been the engine of momentum, and demand for wafer fabrication equipment has stayed strong as cloud providers expand capacity and chipmakers add lines.

Advanced packaging is the quiet story here — hybrid bonding and related techniques are becoming essential to high-bandwidth memory, and Applied’s process positions in that area are difficult for competitors to replicate.

So Why Is the Stock Down 25%?

Shares trade near $550 against a year-to-date high of $739.67. The selloff wasn’t necessarily triggered by deteriorating fundamentals — it was a convergence of three things.

First, profit-taking after an extraordinary run. AMAT had surged dramatically in the first half of 2026 alongside the broader semiconductor complex, and institutional investors began rotating out of high-valuation names. Second, Michael Burry disclosed short positions in AMAT and several other AI-linked names back in late June, amplifying bearish sentiment at a vulnerable moment. Third, and most substantively, China.

Export restrictions have already been quantified as a $600 million to $710 million revenue headwind for fiscal 2026 under the BIS Affiliates Rule. China once represented nearly 40% of revenue and now sits closer to 25–30% — a decline driven by policy, not competitive losses. Non-U.S. competitors like ASML and Tokyo Electron face fewer constraints, which is a real structural disadvantage.

Bottom Line

The recovery thesis is simply that AI-driven demand in those advanced categories grows faster than China revenue declines. Thursday’s guidance for the fiscal fourth quarter will be the first real test of whether that math is working.

The setup into Thursday is attractive but not risk-free. A Zacks Rank #2 (Buy) with a positive Earnings ESP is the configuration our research says produces beats about 70% of the time, the estimate revision trend is pointed the right way, and a 25% drawdown has removed a great deal of the optimism that was embedded in the price just a few months ago.

The counterweight is that guidance, not results, will determine the reaction — and any commentary suggesting the China headwind is widening rather than stabilizing would overwhelm an otherwise strong quarter. That’s the trade to weigh before the bell.

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This article originally published on Zacks Investment Research (zacks.com).

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