AMAT: Earnings Preview for the Semiconductor “Picks and Shovels” Company

Applied Materials (AMAT) is due to report earnings after today’s close, on the heels of other companies like Deere (DE), JD.com (JD), Tapestry (TPR), and Advance Auto Parts (AAP) that reported this morning. All these companies could have one thing in common in regard to their earnings, which is further insight into the effects of the new and ever-shifting tariff and Trade War landscape. 

AMAT is interesting because it could offer investors a different perspective on the critical chipmaking sector from the view of a “picks and shovels” type of company; referring to the idea of the business that sells equipment to the miners during a gold rush.

AMAT shares are up about 53% since the April tariff news shock lows. Analysts are looking for adjusted EPS of $2.34 vs. $2.12 a year ago (+10.4%) and for revenue of $7.20B against last year’s figure of $6.78B (+6.2%), according to Zacks. Important information to watch includes revenue breakdowns for two of AMAT’s main segments relating to the semiconductor industry, which are Systems and Services. AMAT also has another important business segment, which is products for manufacturing display technologies for electronics screens for phones, TVs, and laptops. 

However, China remains a major uncertain factor for the semiconductor industry as a whole. Looking at AMAT’s geographic revenue breakdown, China accounts for about 28.7% of its sales, so this will be another situation that investors will closely monitor. The relationship between the two countries remains tense, with Reuters reporting this morning that the Chinese company E-Town Semiconductor Technology is suing AMAT for almost $14M in damages. The lawsuit alleges AMAT illegally obtained and used technologies by hiring former employees from an E-Town subsidiary company.

The AMAT chart shows several noteworthy technical levels. To the downside, price recently bottomed out and bounced near the 175 level, which represents a frequent stopping area for price during the past year as well as the 252-day Exponential Moving Average and a heavy volume node. Additionally, the area near 185 shows the yearly Volume Profile Point of Control coinciding with the 21-EMA for a closer supportive area to consider. 

To the upside, the 200 level sticks out. This was a previous high from January that price attempted and failed to break above in mid-July. Options traders may also note that the expected move for the Aug. 15 monthly expiration, which captures earnings, shows a potential range of about +/-5.2%, which is right around that same 200 level on the upper boundary.