Applied Materials Shares Drop Due to Weak China Demand and Tariff Risks

Applied Materials, one of the world’s top makers of semiconductor equipment, is feeling the heat. Its shares dropped sharply after signs of weaker demand from China and fresh concerns about U.S. tariffs. The company earns a big part of its revenue from Chinese chipmakers, so a slowdown there hits hard. Add to that the risk of tighter trade rules, and we can see why markets reacted fast. In the semiconductor world, these shifts matter to all of us; they affect the supply of chips used in our phones, cars, and everyday tech. This is a story about global trade, technology, and how one company is caught in the middle.

Company background

Applied Materials builds machines and software used to make semiconductors and displays. Its tools are part of the factories that produce chips inside phones, cars, servers, and many household gadgets. The company has a global footprint and competes with names like ASML, Lam Research, and Tokyo Electron. In the July quarter, roughly 35% of the company’s sales came from China, making the market a key part of Applied Materials’ revenue base.

On August 15, 2025, Applied Materials shares plunged roughly 14% in premarket trading after management cut its outlook for the next quarter. The company expects fourth-quarter revenue to be about $6.70 billion, plus or minus $500 million, which is below analysts’ projections of roughly $7.33 billion. The warning came even though the company posted solid third-quarter results, with revenue up 8% to $7.30 billion. The market reacted quickly to the revenue guide and the message that demand from China was weakening.

Weak demand from China

China’s chipmakers slowed orders for several reasons. First, some local firms are facing a period of excess capacity for mainstream chips. That can cause them to delay new orders for factory tools. Second, policy shifts and export-licence limits have added uncertainty. Export licences for advanced tools became harder to secure for some Chinese buyers, cutting into near-term sales. Third, a broader economic slowdown in parts of China has reduced spending across industries that need chips, such as smartphones and cars. Together, these forces pushed Applied Materials to flag weaker China demand and cite “reduced visibility” in that market.

Numbers that matter

China accounted for approximately 35% of Applied Materials’ sales during the July quarter.
The company recorded third-quarter revenue of $7.30 billion, reflecting an 8% increase from the same quarter a year earlier.

These numbers highlight how strongly Applied Materials’ performance is influenced by fluctuations in Chinese orders. When a single region supplies over a third of revenue, changes in that region can have an outsized effect on the firm’s outlook.

Tariff and trade-war risks

Tariffs and export controls now add another layer of worry. In recent months, trade policy has tightened around high-tech goods. New U.S. restrictions and threats of higher tariffs create more red tape for companies selling advanced tools to China. That can slow shipments, raise costs, or block sales outright for certain machines. Applied Materials cited this kind of policy uncertainty when it flagged weaker guidance. In short, trade rules are shaping not only demand but also the ability to complete deals.

Broader semiconductor industry impact

Applied Materials’ warning is not isolated. Peers in the chip-equipment sector have also noted hiccups tied to China and policy uncertainty. When major suppliers slow orders, the ripple effect touches chipmakers, device makers, and the wider supply chain. Still, parts of the industry are getting stronger demand from areas like AI data centers and electric vehicles. These pockets of spending can help offset weakness in mainstream markets. But the split between advanced, AI-driven demand and the more cyclical mainstream chip market is now clearer.

Company’s response and strategic moves

Applied Materials is addressing the situation in a few ways. Management highlighted the uncertain policy environment and said it will monitor orders closely. The company is also working to diversify its customer base and push technologies that serve growth areas, such as advanced nodes used in AI chips and tools for display and packaging. Applied Materials aims to adjust production and delivery schedules as demand shifts. The firm has referenced export-license challenges and said it is navigating those issues with customers and regulators.

Conclusion

Applied Materials’ sharp share drop shows how quickly market sentiment can change when a major customer region weakens and trade policy becomes uncertain. China accounts for a sizeable share of Applied Materials’ sales, and the firm’s guidance reflected that reality. Tariffs and export-control risks add complexity that can slow orders and cloud visibility. As the semiconductor industry evolves, firms like Applied Materials will keep balancing short-term cycles with long-term bets on AI, advanced chips, and new markets. For now, the sudden shift is a clear reminder of how global politics and local demand combine to shape the tech supply chain.

Disclaimer:

This content is for informational purposes only and is not financial advice. Always conduct your research.