What happened

Shares of Applied Materials (AMAT 2.00%), which manufactures machinery for the production of semiconductors, enjoyed a modest lift in its share price Friday morning -- but one that soon faded in light of the ongoing pessimism in the semiconductor industry, and a red Nasdaq this morning.

Applied Materials peaked with a 3.3% gain at 9:55 a.m. ET, but as of 11:15 a.m. it's given back most of those gains and is up only 1.2%.

So what

This seems curious given how good the news from Applied Materials was last night. Reporting earnings for its fiscal fourth quarter of 2022, Applied said its adjusted quarterly earnings were $2.03 per share -- $0.30 ahead of Wall Street estimates -- while its sales of $6.75 billion topped expectations by $300 million.  

More than just a quarterly earnings beat, fiscal Q4 marked the end to an objectively great fiscal year for Applied Materials. Sales grew 12% year over year for fiscal 2022 to $25.8 billion, and earnings were up even more -- rising 16% to $7.44 per share. What seems to be tempering enthusiasm for the stock, though, is that signs are starting to point to a slowdown.

Consider: Sales were up 12% for the year, but up only 10% in the quarter. True, this still set a record for quarterly sales -- but the pace of Applied Materials' gains did still slow. Profits in Q4 were also something of a disappointment, with non-GAAP (adjusted) profits up 5% year over year, but earnings calculated according to generally accepted accounting principles (GAAP) down 2% year over year. Even if these quarterly results were better than expected, they were not great.  

Now what

And if things slowed down a little in Q4 for Applied Materials, they look to be slowing even more as the fiscal calendar flips over to 2023. Guiding for the fiscal first quarter of 2023, Applied Materials management told investors to expect that sales will range from about $6.3 billion to $7.1 billion -- $6.7 billion at the midpoint. That's about 6% year-over-year growth from fiscal Q1 2022, or half the rate of sales growth that Applied Materials averaged in fiscal 2022.

Earnings, meanwhile, might not just slow, but actually reverse next quarter. Although management gave its forecast only in terms of adjusted earnings, the midpoint of that guidance -- $1.93 per share -- seems to imply a decline from last year's Q1, when Applied Materials earned a $2 GAAP quarterly EPS.

Granted, at a trailing price-to-earnings ratio of only 14, Applied Materials stock doesn't look particularly expensive right now. But with sales slowing and profits potentially contracting, the future's not looking as bright for this company as it did just one year ago. Last night's earnings beat notwithstanding, perhaps investors are right to be cautious about this one.