What happened
Shares of Applied Materials (AMAT 1.46%) were down big at the market open after another round of negative economic news. The market rallied later in the morning, sending the stock up 3.7% as of 1:03 p.m. ET on Thursday.
Market traders had a lot to digest. In addition to a negative inflation report, Applied Materials warned that revenue will be lower than originally expected next quarter. But after falling 50% this year, the market might be starting to focus on the value underneath the stock price.
So what
The recent export restrictions on chip sales to China are expected to cut between $250 million to $550 million from the company's net sales for the fiscal fourth quarter ending Oct. 30. This would also include improvements to the supply chain.
Overall, total revenue is expected to come in at approximately $6.4 billion, plus or minus $250 million. This is down from management's prior guidance for revenue of $6.65 billion, plus or minus $400 million. The company also expects a marginal hit to the bottom line, but the stock's low valuation already factored in low expectations, which explains why the stock moved higher.
Now what
The stock trades at a price-to-earnings ratio of 10.2 based on expected earnings -- the lowest it's been over the last decade.
Applied Materials is a leading supplier of equipment used to fabricate semiconductor chips. Revenue has nearly tripled over the last 10 years, and more growth is expected as the leading chip companies continue to plow more resources into new chip technologies.
While Applied Materials works to overcome supply chain problems, its backlog has continued to grow. This could be a great buying opportunity, with the semiconductor industry's revenues expected to reach $1 trillion before the end of the decade.
