Why Applied Materials Stock Popped 13.4% in November

A slightly better-than-expected quarter helped the semiconductor equipment leader rebound last month. Here's what investors need to know.

Steve Symington
Steve Symington
Dec 10, 2018 at 6:11PM
Technology and Telecom

What happened

Shares of Applied Materials (NASDAQ:AMAT) climbed 13.4% in November, according to data from S&P Global Market Intelligence, after the semiconductor equipment specialist announced fiscal fourth-quarter 2018 results. 

That's not to say Applied Materials' actual results looked overwhelmingly positive. Quarterly revenue increased a modest 1.1% year over year to $4.01 billion, translating to a 4.9% decline in adjusted (non-GAAP) net income to $956 million. Thanks to ambitious stock repurchases of $5.89 billion during the fiscal year, however, adjusted net income climbed 4.3% year over year on a per-share basis, to $0.97. By comparison, these results were slightly above the midpoints of Applied Materials' guidance provided in August, which called for revenue of $3.85 billion to $4.15 billion, and earnings per share of $0.92 to $1.00.

Stock market charts on a colorful display indicating gains

IMAGE SOURCE: GETTY IMAGES.

So what

"In fiscal 2018, each of Applied's major businesses delivered double-digit growth despite challenging conditions in the second half of the year," stated CEO Gary Dickerson. "While near-term market headwinds remain, overall industry spending remains robust, and we are focused on positioning Applied Materials for the long term, expanding our role in the A.I.-Big Data era and winning the major technology inflections ahead."

Regarding those "near-term market headwinds," Applied Materials told investors to expect net sales for the current first quarter of fiscal 2019 to range from $3.56 billion to $3.86 billion, down 12% year over year. That should translate to adjusted net income per share of $0.75 to $0.83, down 25% from the same year-ago period. 

Now what

Why, then, did Applied Materials' shares steadily climb for the duration of last month? For one, they were already down nearly 40% year to date leading up to its earnings release, so it seems the stock was already pricing in the company's near-term weakness. Coupled with a quarterly performance that -- however slight -- managed to edge out expectations, as well as Applied Materials' astute moves to position itself for sustained, long-term growth, the market had little choice but reward it with modest gains in November. And make no mistake: If Applied Materials can build on this momentum and demonstrate the worst is over in the coming quarters, I suspect its stock will only continue to respond in kind.