China now requires semiconductor fabs to use at least 50% domestically produced equipment for new capacity, favoring local suppliers like Naura and AMEC. This policy, combined with U.S. export restrictions, limits Applied Materials' access to China's advanced chip market, where domestic firms are rapidly gaining ground. Although China's new immersion DUV lithography systems pose no immediate threat to Applied Materials' 2026 earnings, the long-term risk is that China could build fully domestic production lines, reducing foreign equipment demand. Applied Materials still benefits from AI-driven growth outside China, but its China revenue, nearly 30% of total, faces increasing competitive pressure from China's growing semiconductor equipment industry.
