Applied Materials Q3 Earnings Preview: Can AI Momentum Outpace Trade Headwinds?

Applied Materials ($AMAT) will report its fiscal Q3 2025 results this Thursday, Aug. 14, after the bell, with the earnings call set for 4:30 p.m. PT. Wall Street is looking for EPS of $2.34 (up 10.4% YoY) on $7.2B in revenue (+6.2% YoY). AMAT has beaten EPS expectations for four straight quarters, although revenue results have been a little more mixed — a small Q2 miss back in May led to a 5%+ stock drop despite record earnings.

Stock-wise, it’s been quite a ride in 2025. Since April, AMAT has rallied from around $120 to nearly $200 in July, riding the AI semiconductor buildout wave. More recently, the stock has eased back to the mid-$180s in early August, pressured by broader market volatility and some profit-taking. Shares trade at roughly 22x forward earnings — not exactly bargain territory, but the premium reflects optimism over AI-driven demand.

Key Things to Watch This Quarter

1. AI-fueled Semiconductor Systems growth

This is AMAT’s core engine. Foundry/logic and DRAM customers, especially those advancing to 3nm and 2nm nodes and scaling high-bandwidth memory (HBM) capacity, continue to drive orders. Investors will be looking for commentary on tools like the SIM3 Magnum Etch System and cold field emission e-beam systems, both of which are critical for process leadership and could indicate whether AMAT is gaining or defending market share against Lam Research and Tokyo Electron.

2. China exposure and revenue diversification

A year ago, China made up about 43% of AMAT’s sales. That’s now closer to 25%, largely due to U.S. export restrictions on advanced semiconductor equipment. Growth in Taiwan and South Korea has helped offset some of this, but new restrictions or licensing delays remain a key risk. Management’s outlook here will be closely parsed — not just for the next quarter, but for how the company can stabilize its global revenue mix longer-term.

3. Margins & capital returns

Q3 gross margin is expected to dip slightly to about 48.3% from Q2, reflecting cost pressures and product mix changes. Still, AMAT’s cash generation is strong, with Q2 operating cash flow up nearly 13% YoY. The company has a $10B share repurchase program in place alongside steady dividend payouts. Any hints at accelerating buybacks or boosting the dividend could help sentiment, especially if macro headlines remain noisy.

Street Sentiment Is Mixed

Bulls: Goldman Sachs initiated coverage with a Buy and a $225 target, pointing to the company’s leverage to the industry shift toward 3D architectures and advanced packaging. UBS raised its target from $175 to $185 (Neutral) but sees Q3 results likely coming in slightly better than expected.
Caution flags: Morgan Stanley kept an Equal-Weight rating with a $169 target, warning that fiscal 2026 growth could be flat despite optimism in the near term. Redburn-Atlantic cut its rating to Neutral, citing potential share losses in the Physical Vapor Deposition business.
Consensus view: Of the 34 analysts covering AMAT, 22 have Strong Buys, 3 are Moderate Buys, and 9 rate it Hold, for a consensus “Moderate Buy.” The average price target is about $205.68 — implying roughly 9% upside from current levels.

Bigger Picture

The semiconductor equipment market is still expected to grow over 20% annually, driven by AI, 5G, and IoT demand. AMAT’s strengths in deposition and etch tools put it in a solid position for the next wave of advanced node and 3D NAND investments.

The Display and Adjacent Markets segment — which had been soft in recent years — is also seeing a gradual recovery thanks to rising OLED demand. If this trend holds, it could provide incremental tailwinds for both revenue and margins.

That said, the competitive backdrop is intense. ASML has already warned about potential U.S. tariff impacts in 2026, which could ripple across the entire semiconductor equipment sector. Lam Research and Tokyo Electron remain strong in etch, while Nikon and Canon are pushing in advanced lithography. Execution, especially in navigating trade policy and sustaining technology leadership, will matter as much as end-market demand.

Bottom Line

If Q3 shows robust Semiconductor Systems growth, a continuing Display recovery, and management guides Q4 above Morgan Stanley’s muted forecast, AMAT could see a post-earnings push back toward the $200 mark. But with China now a smaller share of sales and margins under mild pressure, investors may hold back from going “all in” until they see how fiscal 2026 is shaping up.

From where I sit, AI-related capex still has room to run, and AMAT’s tool portfolio keeps it embedded in multiple critical process steps. The real test is whether that growth can keep outrunning the drag from geopolitics.