Shares of Applied Materials, Inc. (AMAT) plummeted by 6.5% to $184.36 during Tuesday’s trading session, caught in a broader sell-off that swept through the semiconductor industry. The decline can be attributed to a confluence of factors, including Nvidia Corp.’s post-earnings slump, escalating geopolitical tensions, and a risk-averse market sentiment.
Nvidia’s disappointing earnings report, which fell short of analyst expectations, sent shockwaves through the chip sector, triggering a wave of selling pressure. Adding to the unease, rising geopolitical tensions, particularly concerning China’s rapid advancements in chip technology, have fueled investor concerns. A recent report in Nikkei suggested that Chinese-made chips are now only three years behind those produced by Taiwan Semiconductor Manufacturing Company (TSMC), raising doubts about the effectiveness of US efforts to curb China’s technological progress.
The broader market is also experiencing a risk-off mood as investors await the crucial US jobs report due on Friday. This report is expected to significantly influence the Federal Reserve’s upcoming interest rate decision on September 18th, further adding to market uncertainty.
Adding to the geopolitical concerns, reports have emerged that China has threatened possible retaliation if Japan restricts exports of chipmaking equipment to China. This development poses a significant challenge for companies like Applied Materials, which rely heavily on international markets, including China, for a substantial portion of their revenue.
As a key player in the semiconductor equipment industry, Applied Materials is particularly vulnerable to these geopolitical developments. Any escalation in trade tensions or export restrictions could disrupt its supply chain and limit its access to critical markets. The company’s reliance on China as one of its largest customers makes it particularly susceptible to the current geopolitical landscape.
In light of these challenges, investors are closely evaluating Applied Materials’ prospects. While the company does pay a dividend, currently yielding 0.79% per year, its future performance remains uncertain. The company’s capital allocation program, which includes share buybacks, can provide some support to share prices, but the impact of the current market turmoil on its operations and profitability remains a key concern.
