Applied Materials'

(AMAT) - Get Report

fiscal second-quarter results after the bell Tuesday will hold significance for more than just the company and its shareholders. Indeed, the near-term direction of the entire stock market could hinge on what the chip-equipment giant says about its quarter and the future.

Hopes that Applied Materials will be this week's

Cisco

(CSCO) - Get Report

have already sent the stock up 12% over the last two days and have provided some of the fuel behind the stock market's rally. The tech-heavy

Nasdaq

was recently gaining 3.5% to 1711, at least in part because of memories of what Cisco's earnings did to the index last Wednesday.

"It's a bellwether stock, so I think the market will react strongly if there is a big surprise on the upside or downside," noted Jay Suskind, head of institutional equity trading at Ryan Beck & Co.

Last week, Cisco zoomed 20% after beating analysts' earnings estimates in a typically slow quarter and saying it is more confident about order momentum going forward. That news sent the

Nasdaq

up almost 8% and the

Dow

up 3%.

Applied Materials is expected to report earnings of 2 cents a share in the quarter on revenue of $1.041 billion, according to a poll by Thomson Financial/First Call. That compares with a profit of 21 cents in the same period a year earlier on sales of $2.139 billion.

But investors will also look closely at sequential order growth, which the company previously estimated at 10% to 15%, or $1.3 billion.

Several analysts have offered upbeat assessments about the firm's orders, with Prudential Securities saying they could rise as much as 34% from a level of $1.12 billion in the fiscal first quarter.

Merrill Lynch and Lehman Brothers have said they wouldn't be surprised to see bookings of $1.4 billion for the quarter, and S.G. Cowen is looking for orders in a range of $1.4 billion to $1.5 billion.

"We believe the company is seeing the beginning of a recovery in all regions: Taiwan, Europe, U.S., Japan and China," said Merrill analyst Brett Hodess in a research note. "The pickup in these regions represents all types of chipmakers: foundry, DRAM, and logic."

Applied Materials previously said it has been encouraged by orders for new technologies. In addition, a rise in the chip-equipment book-to-bill ratio to above 1.0 in March -- the first month above parity in more than a year -- has offered further confirmation that the industry is in the midst of a recovery.

Applied Mathematics

Still, analysts have mixed opinions about the guidance that Applied Materials may deliver.

Goldman Sachs analyst James Covello has increased 2002 and 2003 earnings-per-share estimates and Prudential analyst Shekhar Pramanick has said the company will likely forecast a 15% to 20% sequential rise in third-quarter orders.

"Also, we believe the company will be upbeat about its October quarter, as opposed to the current Street view that the October quarter could be seasonally soft," Pramanick said in a note. "We believe the company could exit the year at an order run rate of about $2.2 billion to $2.4 billion."

But Lehman analyst Edward White has been more cautious, saying he remains "conservative on bookings guidance due to potential for summer seasonality."

"The key question is whether or not order momentum will continue," he said.

Gerard Klauer Mattison's John Geraghty believes that the company has already witnessed an "inflection point" in orders and said now is the time for investors to jump in. But others complain about the stock's lofty valuation and note that much of the good news has already been factored in.

Shares of the Santa Clara Calif.-based company trade at 191 times this year's earnings estimates and almost 40 times 2003 earnings projections as measured by First Call.

UBS Warburg analyst Byron Walker said industry dynamics are pointing to "an intense and brief upcycle, rather than a slow buildup to a robust 2004 and 2005."

"We therefore continue to limit our valuation horizon to achievable economic performance over the next 18 to 24 months, as opposed to optimistic 36- and 48-month projections."

Applied Materials was trading up 4% to $26.76 ahead of the results.