Semiconductor firm Applied Materials is the latest in the sector to post earnings after the market on Thursday.
AMAT – Weekly Chart
After the recent stock market slump, the price of AMAT found support at $186.95. However, it has rallied to $212.43; the latest earnings will test the rally.
Applied Materials releases its Q3 earnings after the market closes on Thursday. The company is expected to have seen growth in revenues from Artificial Intelligence (AI) applications, which has driven the rebound in the semiconductor industry this year.
Increasing demand for sophisticated chips required for AI-centric data centres is expected to have boosted the performance of the company’s Semiconductor Systems segment in the fiscal third quarter.
The company is expected to have benefited from its strong position in DRAM memory and logic. AMAT’s manufacturing equipment, which helps improve the performance and costs of semiconductor devices that serve the IoT, communications, and automotive sectors, is expected to have aided the latest sales picture.
Escalating tensions between the United States and China have not helped the outlook for semiconductor companies. These tensions are likely a headwind on top-line growth. Changes in spending patterns with critical customers and supply-chain constraints will likely have also dragged on Q3 earnings.
For the company’s third-quarter fiscal 2024, the company’s sales projection for Semiconductor Systems is $4.80 billion, which would be growth of 2.9% from the year-ago quarter.
Bank of America analysts, including Vivek Arya, predict that semiconductor sector volatility will continue for the next few months. September has historically been a tough month for semiconductor stocks, and the sector is heading into this period with investors nervous about the recent market decline.
Arya said that “volatility could persist through NVDA earnings and then into September, historically the worst month for SOX, down 70% of the time”. SOX is the semiconductor ETF that hosts the most prominent name companies in the sector.
Other issues that could put investors on pause are geopolitical uncertainties and the US election. A possible re-election of Donald Trump could have a radically different landscape for chip companies and China relations.
However, the Philadelphia Semiconductor Index has seen a 28% return during the current uptrend. Arya noted that previous upcycles have delivered average returns of 67%.
