The AI trade ran into a new kind of worry this month from inside the industry. The heads of the three leading artificial intelligence labs called for slowing down how fast AI models improve, and chipmakers took the hit. They sell against capacity that hasn't been built yet, so any signs of slower AI spending has landed on chip makers first.
Applied Materials was already down more than 40% from its July highs when the news landed. The problem with that selloff is that nothing in the company's actual business has slowed down. Its last quarter was a record and its guidance for next quarter was even stronger.
Now the stock just broke out above a key level with short and long-term trends turning bullish, providing us this opportunity for a defined-risk bullish trade. Timing & Outlook Applied Materials broke above $500 while clearing its 50-day moving average, with both its 1-month and 6-month trends turning bullish.
Resistance sits at $562 and then $602, just below our $615 upside target The stock carries a relative strength score of 10 out of 10 versus the S & P 500 and has outperformed the index over the past month. Five chip equipment makers we track are now outperforming the index.
Semiconductors have moved back into leadership versus the S & P 500 on a daily basis in our sector rotation model, and the weekly trend is turning higher again. Fundamentals Applied Materials trades at a modest premium to the semiconductor industry but it is growing revenue faster than its peers and converting far more of that revenue into profit.
Earnings growth is running roughly in line with a fast-growing chip group, while revenue growth and margins are both well ahead of it. A small premium for that combination looks reasonable, especially with the stock still more than 30% below where it traded in July. Bullish Thesis Record results, and guidance got even better.
Fiscal third-quarter revenue hit a record $9.12 billion when Applied Materials reported on August 13, up 25% year over year, and management guided fourth-quarter revenue to about $10.25 billion, roughly 7% above Wall Street's estimate. The selloff was about AI sentiment, not orders.
Shares fell 6% after Anthropic's CEO called for slowing the pace of AI model development, a month after CEO Gary Dickerson told investors there was "a gap between supply and demand" as AI memory needs keep climbing. Wall Street still sees plenty of room above.
Bernstein reiterated its Buy rating and $700 price target and even Morgan Stanley's reduced $563 target sits about 10% above where the stock trades today.
Options Trade Given the breakout above $500 and the 50-day moving average, leadership across the chip equipment group and record results that the recent selloff ignored, we're looking at a bull put spread to bet on continued upside toward our $615 target while keeping the risk limited.
The Trade: Sell the Nov. 20, 2026 500/480 Put Vertical @ $9.55 Credit The Individual Legs: Buy to Open the Nov. 20, 2026 $480 Put Sell to Open the Nov. 20, 2026 $500 Put Max Reward: $95 if Applied Materials is above $500 at expiration. Max Risk: $1,045 if Applied Materials is below $480 at expiration. Breakeven: $490.45, the level above which the trade starts showing a profit at expiration.
View this Trade on OptionsPlay for Updated Pricing Summary Applied Materials sold off significantly on fear about AI spending that never showed up in its own numbers. The company just posted a record quarter and guided the next one well above Wall Street's estimate. Now the stock has broken back above $500, and the entire chip equipment group is leading the market again.
The November 500/480 put spread offers a defined way to play a move toward $615, collecting income with a nearly 1 to 1 reward to risk ratio.
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