Key Takeaways
- Applied Materials fell 12% today as the chip sell-off that began after the midterms deepened, pulling down Lam Research, KLA and Teradyne.
- Investors fear data-center spending will slow, and Qualcomm’s weak guidance didn’t help.
- Analysts still expect Applied’s normalized EPS to nearly double from fiscal 2025 to fiscal 2027, so the drop has come from its multiple.
- Applied’s Nov. 12 report is the next real test.
Applied Materials (AMAT) fell 12% today on no news of its own, as the chip sell-off that began after Democrats’ midterm wins got worse.
Democrats have signaled plans to regulate AI, and data-center stocks felt it first on Wednesday, before Qualcomm’s weak guidance after the close added to the pressure. Chip-equipment makers Lam Research (LRCX), KLA (KLAC) and Teradyne (TER) fell with Applied.
The Street’s numbers haven’t moved
Analysts still expect Applied’s earnings to climb steeply:
I see no reason for those estimates to fall before Nov. 12.
TIKR tracks 41 analysts on Applied Materials. How many say “Buy”?
See the full breakdown of Buy, Hold, and Sell ratings on Applied Materials, along with Wall Street’s revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See Applied Materials’ Analyst Ratings
Back to an ordinary multiple
So the drop has come from the multiple. On Nov. 2, Applied traded at 21x forward earnings, right at its five-year average and far below the 49x it reached on June 30:
At today’s price, it’s even lower. Still, the last time an equipment boom peaked, the multiple fell to 8.2x at the October 2018 quarter-end, so the price doesn’t assume a real downturn.
Analysts haven’t followed the stock down. Their average price target was $628 on Nov. 2, close to its September high:
The whole group is getting marked down
Lam Research is down 14%. Two weeks ago it reported record September-quarter revenue of $8.22 billion, guided the December quarter to $8.6 billion and said it still expects the industry to spend more than $200 billion on chipmaking equipment in 2027. Only 8% of Lam’s September-quarter revenue came from the US, while 35% came from China. Will a fight in Washington change what chip plants in Asia spend next year?
KLA fell 12% and Teradyne fell 14%, a week after both beat the midpoint of their guidance. KLA expects December-quarter revenue of $4.7 billion, up from $4.14 billion in September. Teradyne’s third-quarter revenue grew 70%, with record memory test revenue that it credits to AI, and it guided the fourth quarter about flat.
Nov. 12 is the real test
To me, the stock has been marked down for a slowdown no company has reported. We’ll find out from the guide for Applied’s 14-week first quarter of fiscal 2027. If it shows equipment revenue still climbing, I’d expect much of this drop to reverse. If it shows equipment revenue flattening, today’s multiple won’t look so cheap.
So what is Applied Materials stock actually worth?
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