Applied Materials shares slip as investors demand faster growth

Applied Materials saw its shares decline approximately 5% in premarket trading, even after issuing an upbeat outlook for the fourth quarter. The chip equipment maker forecast revenue of about $10.25 billion, surpassing the consensus estimate of $9.54 billion, with a steady margin projection of 50.4%. However, this positive forecast failed to fully appease investors.

The market's muted reaction highlights the high expectations for chip stocks and a low tolerance for any indication of falling behind competitors. Following a significant rally that has more than doubled Applied Materials' share price this year, investors are seeking clearer evidence that the company's growth is outpacing rivals in the wafer-fabrication equipment sector.

Summit Insights Group noted that Applied Materials' topline performance has lagged behind peers such as Dutch chip-equipment maker ASML and Lam Research. While Morgan Stanley acknowledged that the flat outlook wasn't a major concern given ongoing capacity expansion, it leaves the company vulnerable to investor demands for superior growth.

Competitors Lam Research and KLA recently reported strong results, and ASML raised its 2026 outlook. Applied Materials shares currently trade at 32.14 times expected earnings over the next 12 months, compared to 34.59 for Lam, 36.85 for KLA, and 33.39 for ASML, indicating a premium valuation that investors expect to be justified by outsized growth.