Shares of Applied Materials (AMAT, Financial) jumped 3% higher after the American chip company provided its Q4 earnings numbers, which exceeded consensus estimates, fueled by strong demand in AI-related chip manufacturing. On an adjusted basis, it earned $2.32 per share from $7.05 billion in sales, up from expectations of $2.19 per share on $6.96 billion in sales. Nevertheless, some doubts appeared as the company gave very modest forecasts regarding the current quarter. Offered upcoming quarter revenue guidance below $7.15 billion, below the $7.24 billion estimate on Wall Street, as well as provided the forecast of $2.29 per share, exceeding the Street's estimation of $2.27 per share

In his remarks, Chief Executive Officer Gary Dickerson highlighted that Applied is a global leader in enabling semiconductor technology advancements, including AI and energy-efficient computing, which are mandatory for the company's material engineering capabilities. However, there is a problem: China, which once recorded a whopping 400% YOY growth, has seen its revenues drop 28%. There have been limits to exporting high technology equipment to Chinese clients mainly due to U.S. restrictions while China's fabless chip maker continues to grow. Investor confidence has been further pressurized by such investigations undertaken by the U.S. government to establish whether compliance with this restriction was underway.

Applied's operating results are arguably more carefully scrutinized because it is a direct vendor to industry titans such as Intel and TSMC; therefore, Applied's outlook defines the major chip market trends.

This article first appeared on GuruFocus.