The REAL Reason Applied Materials (AMAT) Stock Is Down Today

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  • Applied Materials (AMAT) stock fell on a Reuters report it’s being investigated over sales to China.
  • China is on an “entity list” prohibiting sales of advanced chip-making equipment without licenses.
  • Applied has a big operation in China and has recently cut sales to Taiwan.
AMAT stock - The REAL Reason Applied Materials (AMAT) Stock Is Down Today

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Chip-making equipment maker Applied Materials (NASDAQ:AMAT) stock fell after earnings. Solid results were overshadowed by news the Department of Justice (DOJ) is looking into its sales to China.

According to Reuters, Investigators are looking into chip-making equipment sales to China’s Semiconductor Manufacturing International Corp. (SMIC). The charge is the company booked hundreds of millions of dollars in business without proper licenses.

AMAT stock opened this morning at $142.06, a market capitalization of about $120 billion.

Great Earnings, but Government Woes

AMAT reported its earnings for the fiscal year ending in October on Nov. 16. For the full year, the company earned $6.58 billion, $8.05 per share fully diluted, on sales of $26.5 billion.

The fourth quarter was Applied’s best of the year, with a net income of $2 billion, $2.38 per share and revenue of $6.72 billion. That’s a net income jump of 26% on just 3% more revenue.

But Reuters reporter Karen Freifeld reported the company may have sent equipment to SMIC through South Korea. This would evade U.S. sanctions aimed at slowing the development of artificial intelligence (AI) by China’s military.

Applied has a large operation in China. One consultant called the news “very, very bad.” However, analysts only took modest cuts to their estimates for fiscal 2024.

On Applied’s earnings call, Chief Financial Officer Brice Hill termed the report old news. Questions were raised by federal prosecutors in Massachusetts about sales in 2021 and 2022, soon after sanctions began. The DoJ contacts were disclosed in October 2022, he said.

Applied cut its sales to Taiwan by half and increased bookings to China after the sanctions, so analysts say investors do need to be concerned.

AMAT Stock: What Happens Next?

The report could be a buying opportunity since the questions are a year old and cover sales made two years ago. The danger is if the sales continued after the DoJ contacted the company. This would put Applied’s strategy of tilting toward China and away from Taiwan into question.

As of this writing, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


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