**Applied Materials Shares Tumble Despite Strong Q4 Earnings**

Applied Materials experienced a significant drop in shares during early trading on Friday, following its stronger-than-expected fiscal fourth-quarter earnings report. Analysts attributed the decline to a pessimistic outlook for non-AI-chip demand in the upcoming year. As a top provider of the equipment needed to produce semiconductors used in various devices, Applied Materials is deeply embedded in the AI investment narrative, with major technology companies anticipated to invest heavily in AI development.

Leading hyperscalers like Google, Microsoft, Amazon, and Meta Platforms are expected to spend vast sums on developing and training large-language models, portions of which will filter down to sectors where Applied Materials holds a solid market presence. However, the anticipation of softened demand next year arises as companies prioritize AI projects over new investments in memory and other chip applications like the internet-of-things and automotive sectors.

Despite investors adding approximately $20 billion to its market value this year, concerns loom over Applied Materials' forecasted earnings for the current quarter. The company predicts earnings around $7.15 billion, with a margin of error of $400 million, which fell slightly below Wall Street expectations and cast a shadow over its strong Q4 performance. Additionally, export restrictions on advanced technology to China are expected to impact sales in the region, a market previously responsible for nearly 45% of the company’s revenue.

Although China sales accounted for about 30% of the company’s revenue over the past three months ending in October, Applied Materials expects to maintain this level through the end of 2024. CEO Gary Dickerson emphasized the importance of developing critical changes to chipmaking processes that enhance power and efficiency, potentially boosting profit margins. This focus might explain why the company’s profit outlook for the quarter, at around $2.29 per share, surpassed Wall Street forecasts.

KeyBanc Capital Markets analyst Steve Barger predicted that sales from Applied Materials' key Gate All Around transistor could potentially double from the $2.5 billion recorded in the previous fiscal year, due to its ability to improve power and efficiency. However, concerns remain regarding the outlook for wafer front-end equipment (WFE) sales, fundamental to chipmaking.

Brice Hill, Applied Materials’ finance chief, projected the semiconductor industry to reach a $1 trillion valuation by 2030, citing the annual increase in wafer starts and added capacity across the sector. Despite the challenges, Hill noted year-over-year growth in Q4, highlighting the company's resilience.

Analysts, however, remain cautious. Needham analyst N. Quinn Bolton adjusted his price target for the stock from $240 to $225, noting potential declines in WFE intensity as strong demand from China in 2023 might normalize. Other analysts, including Vivek Arya from Bank of America and Joe Quatrochi from Wells Fargo, also lowered their price targets to $220.

As of premarket trading, Applied Materials shares plummeted by 8.2%, opening at roughly $172.11.