To The Moon

$Applied Materials(AMAT)$ is scheduled to report its fiscal Q3 2025 earnings on Thursday, August 14, 2025, after the market closes. As a key player in the semiconductor equipment industry, its results are closely watched for insights into the health of the broader chip sector, particularly amid the ongoing boom in AI and advanced technology.

Revenue: The consensus revenue forecast is approximately $7.2 billion, which would represent a year-over-year increase of about 6.2%. This growth is expected to be driven by robust demand for advanced equipment, particularly for the development of generative AI and more complex chips. The Semiconductor Systems segment is projected to be the main growth engine, with an estimated year-over-year increase of 9.4%.

Earnings per Share (EPS): Analysts expect an EPS of around $2.34 per share, a solid 10.4% increase from the prior-year quarter. However, there has been a slight downward revision of the consensus EPS estimate over the past 30 days, suggesting some cautiousness among analysts.

Applied Materials' fiscal Q2 2025 earnings were a mixed bag, with strong profitability and a notable beat on earnings per share (EPS), but a slight miss on revenue and a subsequent dip in stock price.

Q2 2025 Earnings Summary

The company reported:

Revenue: $7.10 billion, a 7% year-over-year increase, but just shy of the analyst consensus of $7.12 billion.

Earnings per Share (EPS): A record non-GAAP EPS of $2.39, which significantly surpassed the consensus forecast of $2.31.

Profitability: A strong non-GAAP gross margin of 49.2%, the highest since fiscal year 2000, and a 1.7 percentage point improvement year-over-year. This was a key positive takeaway.

Segment Performance: The core Semiconductor Systems segment grew by 7% year-over-year, driven by demand for leading-edge foundry, logic, and DRAM for AI. However, revenue from China, the company's largest market, fell to 25% of total revenue from 45% a year ago, primarily due to U.S. export restrictions.

Lesson from Applied Materials' Guidance

The main lesson from AMAT's Q2 guidance is the importance of a diversified and resilient business model in the face of geopolitical headwinds.

Managing Geopolitical Risks: The company is actively navigating the impact of U.S. restrictions on sales to China. While this has caused a significant drop in revenue from that region, AMAT's ability to offset this with growth in other markets, particularly in leading-edge technologies for AI, is crucial. This demonstrates that its strategic focus on high-growth segments is a vital counterbalance to geopolitical risks.

Focus on Advanced Technologies: Management's commentary reinforced that the AI boom is the primary driver of growth. The company is seeing substantial investments in leading-edge foundry logic and high-bandwidth memory (HBM), which are essential for AI chips. This indicates that while the broader semiconductor cycle may fluctuate, demand for advanced equipment remains strong.

Investor Sentiment is Key: Despite beating EPS expectations and showcasing strong profitability, the stock fell after the report. This underscores a critical lesson for short-term traders: a slight revenue miss or any hint of a cautious outlook, even amid a strong earnings report, can negatively impact investor sentiment, particularly in a volatile sector like semiconductors. The market is not just looking at the headline numbers, but at the underlying trends and future outlook.

Key Metrics and Analyst Expectations

Analysts are generally forecasting a positive, though not spectacular, quarter for Applied Materials. The expectations are for continued growth, but with some potential headwinds.

Key Factors to Watch:

China Business: The impact of U.S. government restrictions on the sale of leading-edge chipmaking equipment to Chinese companies is a significant risk factor. In the previous quarter, revenue from China fell by 37% year-over-year. Investors will be looking for any signs of moderation in this trend and commentary from management on how they are navigating these geopolitical challenges.

Applied Global Services (AGS): This segment, which provides maintenance and services to existing equipment, is also facing pressure from China restrictions. The projected net sales for this segment are expected to see a slight year-over-year decline. The company's ability to offset this with growth in other regions will be a key point of interest.

Forward Guidance: As with most companies in the semiconductor space, the forward guidance for Q4 will be the most critical piece of the report. Any indication of a slowdown in customer capital expenditures or a less optimistic outlook on AI-driven demand could heavily impact the stock. Conversely, a strong outlook would reinforce the bullish long-term thesis.

Applied Materials (AMAT) Price Target

Based on 31 analysts from Tiger Brokers offering 12 month price targets for Applied Materials in the last 3 months. The average price target is $205.30 with a high forecast of $250.00 and a low forecast of $165.00. The average price target represents a 8.94% change from the last price of $188.45.

Short-Term Trading Opportunities

The stock has a history of volatility following earnings, and the Q3 report could present a number of short-term trading opportunities, but they come with significant risks.

Positive Scenario ("Beat and Raise"): If Applied Materials beats the consensus on both revenue and EPS and provides strong forward guidance, the stock could see a significant short-term rally. This would likely be driven by a narrative of resilient demand for advanced chip equipment despite geopolitical pressures.

Negative Scenario ("Miss or Cautious Outlook"): If the company misses on key metrics, particularly if the impact of China restrictions is worse than expected, or if the guidance is cautious, the stock could experience a sharp sell-off. In recent quarters, the stock has shown a tendency to fall even on an earnings beat if the guidance or other factors are not up to investor expectations. This could be a potential shorting opportunity for aggressive traders.

Post-Earnings Volatility: Historical data shows that positive one-day post-earnings returns for AMAT have occurred only about 37% of the time over the last five years. The median positive return was about 3.9%, while the median negative return was -3.6%. This high-risk environment and a recent downward trend in the stock's price make the post-earnings period particularly volatile.

Long Strangle For Potential Applied Materials Q3 Post Earnings Move

A long strangle options strategy is suitable for traders who anticipate a significant price movement in a stock but are unsure of the direction. For Applied Materials (AMAT) post-Q3 earnings, this strategy could be relevant given the potential for high volatility.

To implement a long strangle, a trader would simultaneously buy an out-of-the-money (OTM) call option and an OTM put option on AMAT, both with the same expiration date. The strike price for the put would be below the current market price, and the call's strike price would be above it.

The maximum loss is limited to the total premium paid for both options. Profit is unlimited on the upside and substantial on the downside. The strategy becomes profitable if the stock price moves sharply enough—either up or down—to exceed the break-even points, which are calculated by adding the total premium paid to the call strike and subtracting it from the put strike. This is a non-directional bet on volatility, making it a viable option for an earnings event where the outcome is uncertain.

Strategy Overview: Long Strangle Basics

Structure: Buy an out-of-the-money (OTM) call and an OTM put with the same expiration.

Goal: Profit from volatility expansion or a large price move post earnings.

Risk: Limited to the total premium paid.

Reward: Potentially unlimited if AMAT surges or collapses beyond breakeven thresholds.

AMAT Post-Earnings Setup Example (Long Strangle)

Expiration Date: 12 September 2025

• Strikes: $175 Put and $195 Call

• Premiums Paid: $2.11 (put) + $6.20 (call) = $8.31

• Maximum Loss: Limited to $8.31 per share (total premium)

• Current Price: $188.45 (purple dotted line)

• Breakeven Low: $166.69 (red dashed line)

• Breakeven High: $203.31 (green dashed line)

• Loss Zone: Between $166.69 and $203.31 (shaded in light coral)

• Profit Zone: Below $166.69 or above $203.31 (shaded in light green)

• Maximum Loss: Fixed and occurs if AMAT stays range-bound

AMAT Long Strangle Payoff Diagram

The diagram shows how our profit grows as AMAT moves sharply in either direction, while losses are capped if the stock stays range-bound. This visual captures the convexity of the strangle—limited downside, unlimited upside if AMAT breaks out post earnings.

This setup thrives on earnings surprises, which often trigger sharp moves.

Execution Tips & Risk Management

• Time the Entry: Enter 1–2 days before earnings to benefit from rising implied volatility.

• Avoid Overpaying: Use IV rank and historical move analysis to gauge fair premium.

• Manage Theta Decay: Exit quickly post earnings if the move materializes; time decay accelerates.

Summary

Applied Materials is scheduled to report its fiscal Q3 2025 earnings on August 14, 2025. Analysts anticipate a mixed report, with solid revenue growth but continued challenges.

The consensus expects revenue of approximately $7.2 billion, a 6.2% increase year-over-year, driven by the strong demand for advanced semiconductor equipment for AI. However, the company faces significant headwinds from U.S. restrictions on sales to China, which previously caused a 37% drop in revenue from that region.

Investors should closely watch the performance of the core Semiconductor Systems segment, the impact of the China restrictions, and the company's forward guidance. A strong outlook could trigger a rally, while a cautious tone or a disappointing report on key metrics could lead to a sell-off. The stock has shown high post-earnings volatility, making it a high-risk trading opportunity.

Appreciate if you could share your thoughts in the comment section whether you think a long strangle would be appropriate to trade AMAT while taking note of the high post-earnings volatilty.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire @MillionaireTiger appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.