What inventory levels and order backlog does Applied Materials have, and how might they influence future performance?
Fundamentals: In the earnings release that triggered the 10âŻ% afterâhours drop, Applied Materials disclosed that its inventory has risen to multiâyear highs while the order backlog has contracted relative to the same quarter last year. The combination of a swelling partsâstock and a dwindling pipeline signals that customers are delaying or scaling back spend on waferâfab equipmentâan early warning sign for revenue growth and grossâmargin pressure in the coming quarters.
Implications for performance: A highâinventory balance forces the company to either discount equipment or accelerate shipment cycles, both of which can erode margin and compress earnings. Meanwhile, a softer backlog reduces the visibility of nearâterm sales, increasing the likelihood that the light quarterly outlook will become a longerâterm trend if macroâeconomic headwinds persist. Traders should therefore treat the stock as vulnerable to further downside on any additional signs of demand weakness (e.g., weaker fab-capex guidance, slower semiconductor fab expansions).
Trading outlook: Technically, the stock has broken key support around the 200âday moving average and is trading below its 20âday EMA, with bearish momentum building (RSI now in the lowâ30s). Given the fundamentalsâelevated inventory, shrinking backlog, and a cautious outlookâa shortâbias position (e.g., 5â7âŻ% of capital in puts or a bearish call spread) could be justified, while keeping a tight stop just above the recent intraday high to limit risk if the market reverses on any positive fabâcapex news. Conversely, a contrarian long would require a clear catalyst, such as an unexpected rebound in semiconductor demand or a revised, more aggressive guidance from management.