Applied Materials, Inc. (NASDAQ:AMAT) just reported a record quarter and guided its next one well above Wall Street projections. Even so, the stock went down.
Record Performance and Guidance
The company published fiscal third-quarter results after the market closed on August 13, with revenue of $9.12 billion, up 25% year-over-year and higher than analyst expectations of $8.99 billion. Non-GAAP earnings per share reached a record $3.50, up 41% from the previous year and above the $3.40 consensus projection, marking the company’s fifth straight quarter of exceeding EPS expectations. Meanwhile, GAAP gross margin came in at 50.3%, while operating income reached a record $3.08 billion.
The forward outlook was, if anything, stronger than the quarterly results. Applied Materials, Inc. (NASDAQ:AMAT) forecast fourth-quarter revenue of around $10.25 billion, well above the $9.5 billion analysts projected, and non-GAAP EPS of around $4.02, compared to a Street expectation of $3.69. CEO Gary Dickerson cited strong AI-driven demand for materials engineering equipment, and management stated that it now expects another high growth year in 2027, citing increased client demand visibility.
The One Real Soft Spot
Despite clearing every headline bar, shares dropped more than 3% in after-hours trade. The most likely explanation is context: Applied Materials shares had already rallied around 193% to 200% over the past year heading into this report, at a forward P/E near 26.78x, leaving it “priced for perfection” where even a strong beat and raise failed to meet extremely high investor expectations for AI-driven growth.
That said, the exposure to China was the clearest clearest legitimate concern. Revenue from China fell to 28% of overall revenue, down from 35% a year ago, with China sales down marginally in dollar terms to around $2.51 billion from $2.55 billion. That drop reflects the ongoing impact of US export restrictions, which are expected to reduce Applied Materials’ revenue by hundreds of millions of dollars this fiscal year.
Smart Money Sentiment
Despite near-term obstacles, smart money positioning prior to the report revealed rising institutional support. Institutional hedge fund holdings increased from 111 in the fourth quarter to 138 in the first quarter, indicating accumulation among prominent asset managers. Short interest is still tightly contained at 1.80% of total float, showing little speculative short pressure across the stock.
Insider Monkey’s Verdict
None of the aforementioned factors change the core development story. Key growth investors should view any retreat as a buying opportunity, not a red flag. Applied Materials, Inc. (NASDAQ:AMAT)’s position in cutting-edge logic, DRAM, and sophisticated packaging ensures multi-year revenue visibility as global AI infrastructure development accelerates into calendar 2027. Management’s own commentary points to continued strength heading into the year 2027, with equipment growth now expected to exceed 30% for the year.
While we acknowledge the risk and potential of AMAT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AMAT and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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