Applied Materials Stock Analysis: AI-Driven Semiconductor Demand Fuels Record Results

Applied Materials, Inc. (NASDAQ: AMAT) closed its books on a third quarter that left almost nothing to complain about on the fundamentals. Record revenue, expanding margins, accelerating earnings growth, and increasingly optimistic customer demand all point to a business entering another phase of sustained expansion. Management also raised its Semiconductor Systems revenue expectations for calendar 2026 and expressed confidence that 2027 will be another strong growth year.

Record Financial Performance

For the three months ended July 26, 2026, Applied generated record revenue of $9.12 billion, up 25% year over year — the highest sequential revenue growth in the company's history. Margins kept their relentless climb: GAAP gross margin of 50.3% and non-GAAP gross margin of 50.4% mark the 13th consecutive quarter of year-over-year gross margin expansion. Operating income hit a record $3.08 billion. GAAP operating margin reached 33.7%, and Non-GAAP operating margin expanded to a record 34%, up 330 basis points year-over-year. Non-GAAP EPS of $3.50 rose 41% from a year earlier.

Cash generation remained exceptionally strong. Operating cash flow reached a record $3.04 billion. Capital expenditures were $707 million, resulting in free cash flow of $2.3 billion. The company returned $860 million to shareholders through dividends and share repurchases during the quarter, while maintaining a healthy balance sheet with $7.0 billion in cash and cash equivalents against $6.5 billion of debt. Applied has $12.8 billion remaining in the share buyback authorization and continues to expect to distribute 80 to 100% of free cash flow to shareholders.

Semiconductor Systems Delivers Outstanding Growth

Semiconductor Systems remained the primary growth engine. Segment revenue increased 27% year over year to a record $7.04 billion, while non-GAAP gross margin increased 190 basis points year over year to 55.4%. Non-GAAP operating profit increased 45% year-over-year to a record $2.7 billion.

Foundry-logic continued to account for approximately two-thirds of segment revenue, supported by capacity additions in gate-all-around and FinFET.

Meanwhile, DRAM emerged as one of the fastest-growing businesses. Revenue from DRAM, including high-bandwidth memory (HBM) packaging, increased 52% year over year, and management expects an even larger acceleration during the second half of calendar 2026 as customers begin to expand cleanroom capacity.

Applied Global Services Provides Stable Growth

Segment revenue increased 22% year over year to a record $1.78 billion, supported by subscription services growth and high transactional parts demand. Ramp readiness is a major priority, and the team added more than 1,000 customer support engineers. AGS is using AI and warehouse automation to grow as efficiently as possible, which is reflected in strong gross margin of 35.6%, up 180 basis points year-over-year, and operating margin of 30.1%, up 280 basis points year-over-year.

China Remains an Important Market

China represented 26% of Semiconductor Systems plus AGS revenue, making the region an important factor in AMAT's outlook.

Management currently expects China revenue to increase during calendar 2026, particularly because of investments in 28-nanometer foundry-logic manufacturing, where Applied believes it has strong technological differentiation and share.

This resilience suggests that China continues to represent a meaningful contributor to overall revenue despite geopolitical uncertainty.

Q4 Guidance

The company expects $10.25 billion ± $500 million of revenue, representing a massive 51% year-over-year increase. Non-GAAP EPS is expected to reach $4.02 ± $0.20, up 85% year over year.

Semiconductor Systems revenue is expected to reach around $7.9 billion, up 62% year over year, while Applied Global Services is expected to generate about $1.84 billion, and Other revenue is expected to be around $510 million, composed primarily of Display revenue.

The company expects non-GAAP gross margin to be ~50.4% in Q4, up 230 basis points year-over-year, flat quarter-over-quarter, and non-GAAP operating expenses of around $1.58 billion.

Management is also becoming increasingly confident about 2027. Customers are providing longer-term visibility, with some conversations reportedly extending as far as 2030. Applied is responding by expanding manufacturing capacity, hiring employees and preparing to potentially double quarterly system output from current levels by 2028. In fact, Applied added more than 1,500 people this quarter in worldwide manufacturing and AGS customer support and officially opened the newest manufacturing center in Singapore. Brice Hill, Senior Vice President and CFO, noted that "Based on the unprecedented visibility we're receiving from our customers, we expect another strong, record year in 2027 and are making substantial investments to be able to ramp to higher levels beyond next year."

AMAT Stock Technical Analysis

From a technical perspective, the immediate focus for traders is the resistance level at $566. A decisive breakout and close above $566 would improve the bullish technical setup, clearing the path toward the next target price of $621.

However, if buyers fail to establish support above $566, the stock may enter a period of consolidation or profit-taking. Initial downside support is located around $474. A breakdown below $474 could lead to a deeper retest of secondary support at $436.