MW These chip stocks are falling in the face of a new China setback

By Emily Bary

Semiconductor stocks have been impacted this year by evolving U.S. rules governing the sale of chips to China. Applied Materials just called out a fresh set of challenges.

Applied Materials' stock is dropping in premarket trades but has been a strong performer this year.

U.S. semiconductor companies have faced roadblocks to conducting business as usual in China, and now it's chip-equipment makers' turn to feel the pain.

Applied Materials Inc. (AMAT) warned after Thursday's close that it expected to see a $600 million hit to net revenue in fiscal 2026 from a new rule of the U.S. Department of Commerce's Bureau of Industry and Security that "will further restrict" the semiconductor-equipment company's ability to sell to some Chinese customers without a license. The new rule could also reduce net revenue for the final quarter of fiscal 2025, which is ongoing, by $110 billion.

Shares of Applied Materials were down about 2% in premarket action Friday, while shares of peer Lam Research Corp. $(LRCX)$ were off about 2% as well.

Lam didn't respond to a MarketWatch request for comment about the BIS rule.

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The new BIS rule institutes restrictions on customers that have at least 50% ownership by "military end users" and customers that have at least 50% ownership by companies on the "Entity" list, which is a government list of parties seen to be acting in conflict with U.S. interests.

"This is annoying, but seems fairly incremental, and more of a 'clean-up' than anything hugely new (the rule itself notes that the 50% ownership standard in the new rule is 'designed to be consistent with longstanding Department of the Treasury practice')," Bernstein analyst Stacy Rasgon wrote in a note to clients. "In fact, the ruling suggests part of the rationale is to reduce the need to publish additional final rules to add entities to the Entity list (so perhaps this is the last one we will see ... )"

Cantor Fitzgerald analyst C.J. Muse called the move "another blip in a streak of poor messaging from Applied Materials," though one he said could only represent a roughly 2% impact to fiscal 2026 revenue, "so not terrible."

Muse said the impact to Lam Research would be "much less," since the company has more exposure to companies in China that were already subject to restrictions prior to the latest update.

Lam Research's stock has been a big winner this year, roughly doubling over the course of 2025 to date, amid optimism about the company's ability to benefit from the booming memory market. Applied Materials' stock hasn't seen quite the same gains, but it's up 37% on the year, trouncing the S&P 500's SPX 14% gain.

There have been various changes to license rules in the semiconductor industry over the past few months, most notably in the spring when the U.S. government made it so that Nvidia Corp. (NVDA) and Advanced Micro Devices Inc. $(AMD)$ would need licenses to sell graphics processing units to Chinese customers - licenses the companies didn't expect they would actually receive. The government later relented but said Nvidia and AMD would have to give it a cut of their China sales.

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Cadence Design Systems Inc. $(CDNS)$ and Synopsys Inc. $(SNPS)$, which both make chip-design software, both saw their stocks hit earlier this year over license rules, though the situation has since relaxed.

-Emily Bary

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October 03, 2025 09:33 ET (13:33 GMT)

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