Applied Materials stock has slumped into a bear market after falling more than 50% from its all-time high, as concerns about the artificial intelligence (AI) industry persist. The stock is about to form a death cross pattern, which points to more downside. That risk could grow as its earnings report looms.
Applied Materials to publish its earnings report
AMAT stock has dropped by over 50% from its highest point this year, mirroring the performance of other companies in the AI space, including popular names like Nvidia, Intel, and Micron.
Applied Materials will publish its earnings report this week, with analysts expecting the numbers to show that its revenue growth continued during the quarter.
Kyro AI data shows that Wall Street analysts expect the company’s revenue growth to have accelerated in the last quarter. The estimate is that its revenue jumped by 51% in the fourth quarter to over $10.3 billion. The most optimistic analyst expects its revenue to be $10.5 billion.
This revenue growth is because of the rising demand for its products, which are widely used in the semiconductor industry. These include equipment used in product deposition, etch, chemical mechanical planarization, and rapid thermal processing. These equipment are in high demand from companies like TSMC, Intel, GlobalFoundries, and Samsung.
The most recent results showed that Applied Materials’ business is doing well, with its revenue rising by 25% in the third quarter to $9.1 billion, with its net income hitting $2.5 billion, and its operating margin rising to 33.7%.
Options market points to more volatility after earnings
The options market suggests that the stock will be highly volatile after earnings. Kyro AI shows that options expiring on Friday have an implied volatility of 121%, much higher than its historical volatility.
The company has a put/call volume ratio of 0.65 and a put/call open interest ratio of 0.62. These numbers mean that the company has more calls than puts. Call options give investors a right, but not the obligation to buy an asset before it hits a strike price. Most of the call options are concentrated at $380, up by 3% from the current level.
Historically, however, Applied Materials doesn’t experience substantial moves after elections. For example, it dropped by about 9% in the last earnings report. Before that, the stock barely moved after those results.
Analysts have a mixed opinion on the company. Morgan Stanley’s Shane Brett reduced the target from $563 to $538, while Craig Ellis, a B. Riley analyst, slashed from $700 to $475. Needham also lowered the target from $740 to $580. The average estimate among analysts is $625, down modestly from $640, where it was three months ago.
Applied Materials stock is about to form a death cross pattern
AMAT stock chart | Source: TradingView
The daily chart shows that the AMAT stock has been in a downward trend in the past few months. It moved from a high $740 in June to the current $369.
The stock has dropped below the important support level of $412, its lowest level on September 16. Most notably, it is about to form a death cross pattern, which happens when the 50-day and 200-day moving averages cross each other. A death cross pattern normally leads to more downside.
Therefore, the stock will likely continue falling in the coming days. If this happens, the next key level to watch will be at $316, its lowest level this month. A move below that level will point to more downside.
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