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Why Did Applied Materials Stocks Fall After Q2 Results?

Applied materials (AMAT) released results for the second quarter of fiscal 2022 that showed improvements over the same quarter a year earlier, but fell short of Wall Street expectations. Its forecast for the current quarter also turned out to be pessimistic. As a result, AMAT stock fell nearly 2% in extended trading on May 19 following the earnings report.

Applied Materials provides manufacturing equipment and process technologies used in the production of semiconductor chips. Its customers include chip manufacturing giants like Intel (INTC), Samsung Electronics (SIDS) and Taiwan Semiconductor Manufacturing (TSM). The reported results are for the three months ended May 1.

Earnings at a glance

Revenue rose 12% year-over-year to $6.25 billion, but fell short of the consensus estimate of $6.35 billion. Adjusted earnings per share (EPS) of $1.85 jumped from $1.63 in the same quarter a year earlier, but missed the consensus estimate of $1.90.

While demand remains strong for Applied Materials’ products, the company is struggling to fulfill orders due to supply chain challenges. The company sources some of the parts that go into its equipment in China, but COVID-19-related lockdowns in the country have disrupted the supply of those components. Supply chain issues led Applied Materials to lose about $150 million in revenue during the quarter.

The company returned $2.01 billion to shareholders in the quarter, including $211 million in dividends and $1.8 billion in share buybacks.

Outlook

For the third quarter, Applied Materials forecasts revenue of $6.25 billion, plus or minus $400 million, which corresponds to a range of $5.85 billion to $6.65 billion. However, Wall Street expects revenue of $6.68 billion for the quarter. While Applied Materials was guiding Adjusted EPS in the range of $1.59 to $1.95, the consensus estimate calls for EPS of $2.04.

The Taking of Wall Street

The consensus among analysts is a strong buy based on seven buys and two holds. The average Applied Materials price target of $159.11 implies upside potential of 44% from current levels. Shares are down about 30% since the start of the year.

Reviews of bloggers

Data from TipRanks shows that the opinions of financial bloggers are 87% optimistic on AMAT, compared to an industry average of 69%.

Key takeaway for investors

Supply chain issues are just a temporary setback for Applied Materials. The company’s long-term outlook looks promising as demand for chips increases across all sectors.

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