By Jaspreet Singh

(Reuters) – Applied Materials forecast first-quarter revenue below Wall Street estimates on Thursday, indicating sluggish demand for chipmaking equipment outside of AI-powered chips, leading to a nearly 5% drop in shares during extended trading.

Despite strong demand for leading-edge equipment for AI chips, slow spending in certain markets has impacted demand for companies like Applied Materials (NASDAQ:AMAT).

"Any sign of slowing momentum for recent explosive, AI-related growth … is being penalized by investors," said Brooks Idlet, analyst at CFRA.

Additionally, stricter export controls on high-end chips and equipment to China from the United States have created lingering uncertainty for both tool suppliers and chip manufacturers.

Applied Materials also faces competition from other chipmaking equipment suppliers, including KLA Corp, Lam Research (NASDAQ:LRCX), and Europe's ASML Holding (AS:ASML).

Rival ASML previously forecast lower-than-expected sales and bookings for 2025 due to sustained weakness in parts of the semiconductor market, despite the AI chip boom.

The largest U.S. semiconductor equipment maker expects first-quarter revenue of about $7.15 billion, plus or minus $400 million, below analysts' average estimate of $7.22 billion, according to data compiled by LSEG.

It forecasts adjusted profit per share of about $2.29, plus or minus $0.18, which is above the estimates of $2.27. Revenue rose 5% to $7.05 billion for the fourth quarter ended Oct. 27, exceeding estimates of $6.95 billion. China accounted for 30% of the company's revenue in the quarter, down from 44% in the same period last year.

Adjusted profit per share of $2.32 also surpassed estimates of $2.19 in the fourth quarter.