Image source: Applied Materials.

What happened

Shares of semiconductor equipment provider Applied Materials (NASDAQ:AMAT) jumped 13.5% in August, according to data provided by S&P Global Market Intelligence. The company's fiscal third-quarter report came in mixed, but an earnings per share beat and record new orders drove the stock higher.

So what

Applied Materials reported third-quarter revenue of $2.82 billion, up 13% year over year but about $20 million below the average analyst estimate. While revenue was slightly weaker than expected, the company recorded $3.66 billion worth of new orders during the quarter, an all-time high and 26% higher compared to the same period last year. Applied Materials' backlog reached $4.95 billion, also an all-time high.

This strong order growth led Applied Materials to provide an optimistic outlook for the fourth quarter. The company expects sales to rise by 15% to 19% sequentially, with non-GAAP EPS between $0.61 and $0.69. For the third quarter, Applied Materials reported non-GAAP EPS of $0.50, up 52% year over year and $0.02 higher than analysts expected.

The semiconductor systems segment produced $2.22 billion of new orders, up from $2 billion during the prior-year period. Strong growth in orders for foundry equipment offset weakness in DRAM and Flash equipment orders. The display and adjacent markets segment saw orders grow by 153% year over year to $803 million, while the applied global services segment managed order growth of 8.7%, generating $590 million worth of new business.

As Applied Materials CEO Gary Dickerson summed up the quarter:

With earnings and orders at an all-time high, Applied is performing better than ever and in a great position to sustainably outperform our markets. We are in the early stages of large, multi-year industry inflections that are driving our business today and creating new opportunities for future growth.

Now what

Applied Materials' business is inherently cyclical, meaning that its revenue and earnings will fluctuate with demand. Trying to predict exactly when these cycles will turn is a fool's errand, but what is certain is that the company won't be able to produce record results indefinitely. When demand declines, Applied Materials' earnings can plummet.

For now, though, the company is firing on all cylinders, and investors like what they see. The stock has nearly doubled over the past year as business has picked up, with shares now trading at their highest level since the dot-com bubble. With the stock trading for around 17 times analyst estimates for full-year non-GAAP earnings, it will need to continue producing record results in order to keep investors happy.

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