Applied Materials Inc (NASDAQ:AMAT, ETR:AP2) shares were in the red on weaker-than-expected guidance despite strong first-quarter earnings.
The company beat expectations with revenue of $7.17 billion, up 7% year-over-year and above the $7.15 billion analyst estimates.
The company's non-GAAP earnings per share (EPS) came in at $2.38, surpassing analysts' estimates of $2.29.
Despite the positive results, Applied Materials' stock fell 5.9% in early Friday trading due to a softer outlook for the upcoming quarter. The company forecasts second-quarter revenue of approximately $7.1 billion, below the market estimate of $7.21 billion.
The primary concern driving the stock's decline is the impact of tightening export restrictions on chipmaking technology to China. Applied Materials warned that these trade policies would result in a loss of about $400 million in Chinese revenue this year. In the first quarter, sales to China accounted for 31% of the company's total revenue, down from 45% in the same period last year.
CEO Gary Dickerson noted that while the industry drive to accelerate the development of advanced compute and more sophisticated AI is gaining momentum, the company's ability to serve the Chinese market has been constrained by updated trade rules. The restrictions are expected to affect both equipment sales and the company's services business, which provides maintenance for existing machinery.
Looking ahead, Applied Materials expects the impact from trade restrictions to be felt throughout 2025, with half of the revenue impact occurring in its services segment. The company anticipates China's share of revenue to drop below 30% in the coming months, potentially falling further as Chinese capacity normalizes.