Applied Materials (AMAT) Enters a New AI-Driven Growth Cycle

The rapid buildout of AI infrastructure has been driving a strong demand cycle for semiconductor manufacturing equipment. Applied Materials, Inc. (NASDAQ:AMAT) benefits from such a trend, thanks to chipmakers increasing spending on advanced DRAM, HBM, leading-edge logic, as well as advanced packaging.

This trend is evidenced by the company's latest results, which highlight real financial growth. Applied Materials, Inc. (NASDAQ:AMAT) reported record revenue of $9.12 billion, with non-GAAP EPS of $3.50 and $3.17 on a GAAP basis. Importantly, gross margin was above 50%, demonstrating its 13th consecutive quarter of YoY gross-margin expansion.

The company is not just benefiting from elevated semiconductor spending. It is gaining share too. Applied Materials, Inc. (NASDAQ:AMAT) upgraded its Semiconductor Systems revenue expectations for CY 2026, anticipating growth faster than the broader semiconductor equipment market. Notably, the momentum seems to be robust in DRAM, leading-edge foundry/logic, and advanced packaging. Collectively, they continue to become critical as AI chips are more complex.

Furthermore, the numbers support operating leverage. For Q4, the company expects revenue of ~$10.25 billion, demonstrating YoY growth of 51%. The non-GAAP EPS is anticipated to reach $4.02, implying growth of 85% YoY. Semiconductor Systems revenue is projected to increase by 62% to ~$7.9 billion.

UBS analyst Timothy Arcuri kept a "Buy" rating on Applied Materials, Inc. (NASDAQ:AMAT)'s stock and a price objective of $675, highlighting the company's aggressive capacity expansion and continued share gains. The long-term thesis needs to be understood, with Applied Materials, Inc. (NASDAQ:AMAT) aiming to double its systems output capacity by CY 2028, and analyst's model expecting systems revenue approaching ~$14 billion per quarter and earnings reaching $30 per share.

Apart from this, near-term execution is supporting the argument. The quarter ended July marginally surpassed expectations, with October guidance tracking ahead of analysts' consensus while being marginally below UBS estimates.

The Bull Case: HBM Can Drive Next Leg of Growth

Notably, one of the critical opportunities remains the rapid expansion of high-bandwidth memory as well as advanced packaging for AI systems.

Applied Materials, Inc. (NASDAQ:AMAT) rolled out 6 new systems, with the company targeting DRAM and advanced packaging. This includes equipment developed for HBM stacking, TSV formation, copper plating, and defect analysis. Wall Street believes that such products offer Applied Materials, Inc. (NASDAQ:AMAT) additional exposure to the increasing complexity of AI chips instead of being dependent only on wafer-volume growth.