Applied Materials (NASDAQ: AMAT) will reap the benefit of the continued rise in demand for artificial intelligence, bolstering the need for more wafer fabrication equipment for semiconductors.
The investments in AI are a plus for the semiconductor capital equipment company, which is estimated to see greater demand during the second half of 2026.
Revenue from business in China dropped 23% from the previous quarter as a result of trade issues. Sales from China consist of 29% of the company’s revenue for the fiscal fourth quarter.
The chip equipment maker reported revenue of $6.8 billion, which is more than analysts’ predictions of $6.7 billion. Applied Materials also estimated a range of revenue for the current quarter with a midpoint of $6.85 billion, which is higher than the $6.8 billion predicted by the consensus view.
Shares of the company shot up by 36.5% over the past six months and 38% year-to-date.
Growth, R&D to return next year
Growth in Applied Materials is predicted to “grow at a mid- to high-single-digit pace over the course of market cycles as it benefits from trends toward more complex chips in the long term, including gate-all-around transistors, advanced packaging, and artificial intelligence,” wrote William Kerwin, a senior equity analyst for Morningstar.
China remains a hurdle to the company’s profit margins, and issues could persist for the remainder of fiscal year 2026, but revenue growth is anticipated to return.
Applied Materials was the first semi-cap to state that there would be “a slowdown” in its China business, wrote Stifel’s Brian Chin in a research note. “Especially given the about-face on the prior China restrictions, we are optimistic that quarterly China sales could stabilize sooner rather than later.”
The company is getting ready for “higher demand beginning in the second half of calendar 2026,” as it launches more efficient and faster chips, said Applied Materials Chief Financial Officer Brice Hill in a statement based on talks with its customers and partners.
“We have targeted our R&D investments to create new products and technologies that will enable even faster and more energy-efficient transistors, chips, and systems and drive our growth in the years ahead,” Hill said.
Applied Materials will be “well positioned” to produce DRAM, logic chips, and advanced packaging solutions, “next-generation technologies ramp in volume production over the coming years,” and are adopted by various industries, said CEO Gary Dickerson.
The company is likely to generate more business and growth in the near term since it “holds the broadest portfolio, which we think should enable it to maintain its leading market share,” Kerwin wrote.
Known for its chips and dynamic random-access memory, the expansion into AI as more data centers are constructed will produce “material acceleration” for Applied Materials during the second half of next year, wrote Jefferies’s Blayne Curtis.
Applied Materials’ “breadth in chip manufacturing gives it stickier inroads into customers by selling integrated solutions across technologies,” he added. “We assign a wide economic moat rating to Applied Materials, stemming from immense capabilities in cutting-edge chip manufacturing and steep switching costs for customers.”
One reason that Applied Materials stands out among its more-specialized competitors like Lam Research (NASDAQ: LRCX) and KLA-Tencor Corp. (NASDAQ: KLAC) is that it is the only wafer fabrication equipment provider to compete “meaningfully in all three market segments of etch, deposition, and process control,” Kerwin wrote.
The deep pockets of Applied Materials’ market-leading research and development budget, which is over $3 billion annually, also produce “substantial intangible assets and fuel the company’s ability to win and maintain customers across these three distinct segments, in part with its integrated solutions,” he wrote.
Applied Materials can generate “robust” cash flow and “earn strong profit margins” due to its competitive advantage, Kerwin added.
Global chip volume will continue to rise exponentially as the demand for AI has become widespread across various sectors, ranging from healthcare to consumer goods to biotech. Shareholders of Applied Materials will likely be rewarded in the near term, as geopolitical risk appears to have also declined.
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