Applied Materials delivered an optimistic second-quarter forecast, projecting revenue near $7.65 billion and adjusted earnings above analyst expectations. The announcement sent its stock soaring more than 10% on Friday and provided a lift to fellow equipment makers Lam Research and KLA.
The Philadelphia Semiconductor Index advanced 0.66% to 8,137.86, recovering part of its prior session decline. However, the rally was not uniform. Nvidia shares fell 2.21%, while Broadcom declined 1.81%. The broader Nasdaq Composite slipped 0.22%, and the S&P 500 edged up a marginal 0.05% as markets digested January inflation data.
AI Investment Cycle Faces Scrutiny
Applied Materials CEO Gary Dickerson pointed to accelerating industry investment in AI computing infrastructure as a key driver. The positive forecast triggered at least 22 analyst price target increases. Yet, the market action highlighted a growing divergence within the AI trade. "We see this as a 'prove it' year for AI. We need to start seeing some return on investments," noted Jack Herr of GuideStone Funds.
Portfolio strategist Garrett Melson described a "breakdown" in the previously unified AI theme, with stocks now being judged on their individual competitive positioning. This reassessment is contributing to heightened volatility, especially among large-cap technology names.
Policy and Macro Headwinds
Trade policy adds another layer of uncertainty. Reports indicate the U.S. administration has paused certain tech-security measures targeting China ahead of a potential summit between leaders of the two nations. This pause has drawn criticism from some security advocates.
Looking ahead, a holiday-shortened week brings key economic releases. Investors will parse the Federal Reserve's latest meeting minutes on Wednesday, followed by the PCE inflation report, a first revision of fourth-quarter GDP, and flash PMI data on Friday.
Markets are closed Monday for Presidents Day. Attention then turns to Nvidia's fourth-quarter earnings report, scheduled for February 25, which is seen as a critical test for the AI investment thesis.
