Storage is 'red-hot', can Applied Materials (AMAT) still 'benefit'?

Applied Materials (AMAT.O) released its Q4 FY2025 earnings report (ending October 2025) after the U.S. stock market closed on November 14, 2025, Beijing time. Key points are as follows:

1. Core Data: Applied Materials AMAT's revenue for the quarter was $6.8 billion, down 3.5% year-on-year, slightly better than market expectations ($6.68 billion). This was mainly due to a decline in the semiconductor equipment business, particularly as the demand for logic-related products was restricted in regions like China.

$Applied Materials(AMAT.US) The gross margin for the quarter was 48%, up 0.7 percentage points year-on-year, close to market expectations (48.1%). The year-on-year increase in gross margin was mainly driven by a higher proportion of shipments of advanced equipment and increased product prices.

2. Specific Business Conditions: Applied Materials AMAT's business is mainly divided into semiconductor equipment and service revenue, with semiconductor equipment being the largest source of income, accounting for over 70%.

In the semiconductor equipment business: ① This quarter's logic business revenue was $3.09 billion, down 18% year-on-year, which was the main reason for the revenue decline this quarter. Although revenue in the South Korean and Taiwan markets hit new highs, the company's revenue in mainland China and the U.S. declined. Especially due to trade restrictions, the company's supply field in mainland China was further restricted.

② This quarter's storage business was $1.67 billion, up 19% year-on-year, particularly the DRAM business grew by 16% year-on-year, mainly driven by demand from storage customers (outside mainland China).

3. Operating Expenses: The company's operating expenses remained around $1.55 billion, with R&D expenses continuing to rise to $920 million this quarter, the largest item in the company's expenses. Sales and administrative expenses remained at $210 million and $243 million, respectively, this quarter.

In the current sluggish growth situation, the company announced at the end of October that it would start layoffs by about 4% to further improve operational efficiency.

4. Next Quarter Guidance: Applied Materials AMAT expects Q1 FY2026 revenue to be $6.35-7.35 billion, with market expectations at $6.8 billion. The midpoint of the range is a slight 1% increase quarter-on-quarter; the company expects next quarter's Non-GAAP EPS to be $1.98-2.38, with market expectations at $2.15. Due to factors such as trade restrictions, the company is relatively cautious about next quarter's expectations, with growth mainly coming in the second half of 2026.

Dolphin Research's Overall View: Performance is flat, growth expected in the second half of next year

Applied Materials AMAT's performance this quarter was generally mediocre. The revenue decline was mainly due to a drop in the semiconductor equipment business; however, the overall gross margin for FY2025 improved due to factors such as an increase in the proportion of advanced equipment.

Upon closer examination of Applied Materials AMAT's financial report, some changes can still be observed:

1) Storage performed significantly better than logic: The company's storage revenue growth reached 19% this quarter, while logic revenue fell 18% year-on-year. The company was affected by trade restrictions, with an impact of approximately $110 million, even if all attributed to the logic business. Without considering trade restrictions, logic revenue still fell 16% year-on-year. This also indicates that in the current situation of rising storage prices, storage manufacturers have significantly increased their investments, while traditional logic demand remains relatively weak;

2) Revenue growth in South Korea and Taiwan, decline in mainland China and the U.S.: Taiwan contributed the largest year-on-year increase, mainly due to TSMC's significant increase in capital expenditures; growth in South Korea came from SK Hynix's increased investment, offsetting Samsung's reduction in capital expenditures this year;

The decline in the U.S. was mainly due to Intel's reduction in capital expenditures this quarter, directly affecting the company's logic revenue performance; the decline in mainland China was partly due to increased trade restrictions.

[Mainland China trade restriction scope: In 2024, restricted areas include leading process logic and domestic NAND; in 2025, DRAM and some ICAPS markets were added, with an estimated restriction ratio of 10%-> 20%+]

3) BIS Control Adjustment: On September 29, 2025, BIS issued the "BIS Affiliated Company Rule," clarifying that any affiliated entity with a shareholding ratio of ≥50% by one or more entities on the "Entity List" will be subject to the same export control restrictions as entities on the list.

After U.S.-China negotiations, BIS officially suspended this rule for one year starting November 10, 2025. The impact on this quarter's revenue was approximately $110 million, which will be shipped next quarter, but the current trade scope still restricts about 20% of the semiconductor equipment market.

Applied Materials AMAT's current market value ($177.8 billion) corresponds to approximately 24 times PE of core operating profit after tax for FY2026 (assuming a 4% year-on-year revenue growth, a gross margin of 48.4%, and a tax rate of 13%). Referring to the company's historical valuation range (15XPE-30XPE), the current valuation level is at the upper middle of the range.

From the perspective of Applied Materials AMAT's stock price changes, the company's stock price has mostly been in the $150-200 range. Since September, the stock price has gradually risen and surpassed $200, mainly driven by expectations of Intel's "revitalization," Samsung's "expected increase in capital expenditures," and "increased investment in the storage sector," which have already been factored into the stock price. Applied Materials AMAT's valuation has also risen from 16XPE to 24XPE. Further stock price increases will require the company to provide more optimistic outlooks or competitive enhancements to stimulate.

After this earnings report, Applied Materials AMAT did not provide significantly better-than-expected guidance, and next quarter's revenue is expected to be flat, which is unlikely to satisfy the market. On the other hand, management's outlook for FY2026 is not very optimistic, with the company's growth next fiscal year mainly coming from the second half, driven by the ramp-up of advanced factory capacity from major customers.

The market has already factored in the benefits of Intel, Samsung, and storage manufacturers into the company's stock price. However, the company's outlook for the next fiscal year still mainly relies on the ramp-up of advanced process mass production by customers like TSMC, and no relatively optimistic response has been given, which will inevitably discount the company's original expectations.

The following are Dolphin Research's insights on Applied Materials AMAT's earnings report and related data charts: