Applied Materials (AMAT)

Investment Review After Q2 FY2026 Earnings (2026.05.14)

TL;DR

Applied Materials is the world's largest semiconductor equipment vendor — broadest portfolio across deposition, etch, CMP, advanced packaging, and metrology; structural beneficiary of the AI WFE supercycle. Just reported Q2 FY2026: record revenue $7.91B (+11% YoY, +13% QoQ), non-GAAP OM 32% (+140bps), EPS $2.86 (+20%), GM 50% (highest in 25+ years) — exceptional print across the board. Q3 guide $8.95B ±$500M (+23% YoY) with EPS $3.36 (+36%) — growth re-accelerating sharply, with semi equipment now guided to grow >30% in CY2026 (raised from >20% in Q1). Stock at $441 with 39x P/E(ttm), +29% post last quarter end from $342 close — premium that prices in the >30% CY26 ramp + 2027 strength.

Summary

Finding	Assessment
5-Year Stock Return	Stock currently $441, up 209% from $142 (5 years ago). TTM OP grew 30% ($6.9B→$8.9B). P/E(ttm) re-rated 19x→39x on AI WFE narrative.
Business Model	STRONG. #1 semi equipment maker by revenue. $30B+ TTM rev, 35K+ AIx chambers. Semi Systems (75%) + AGS (21%) + Other (4%). #1 in leading-edge foundry logic, DRAM, advanced packaging. 0.6x Debt/EBITDA.
Competitive Moat	NARROW. Process tech + materials engineering depth; EPIC Center co-development with TSMC/Samsung/SK hynix/Micron/Advantest; 35K AIx chambers. Lam/TEL/KLA compete in niches.
Past 5-YR Drivers	Equipment intensity rises every node (GAA, HBM stack, panel packaging). GM up 800bps to 50% on portfolio enrichment. AGS annuity expanded to record $1.67B Q2.
Recent Stock Move	Stock currently $441, +29% post last quarter end from $342 close. Q2 print + raised >30% CY26 equipment guide drove re-rating. P/E(ttm) 33x→39x; TTM OP $8.93B breaks out of $7.7-8.8B steady-state.
Revenue Trend	ACCELERATING Rev YoY: +11% (Q2 2026) → +23% (Q3 2026E).
Margin Trend	FLAT OM%: 32% (Q2 2026) → 32% (Q3 2026E). GM 50% record (highest in 25+ years).
TTM OP Trajectory	ACCELERATING TTM OP QoQ: +4% (Q2 2026) → +7% (Q3 2026E). TTM OP $8.93B.
Key Opportunities	Semi equipment >30% CY26 (raised from >20%); 2027 another record year; advanced packaging +50%; NEXX panel acquisition; EPIC Center opens Fall 2026; AGS mid-teens (raised).
Key Risks	39x P/E pricing in multi-year ramp; China export controls + Huawei letter (China 27%); customer concentration (top-2 ~34%); Taiwan/Korea geopolitical; Q2 FCF $210M (vs $1.06B PY) on inventory build.
Catalysts	Q3 FY26 guide $8.95B/EPS $3.36 (Aug print). EPIC Center opening Oct 12. SEMICON West investor breakfast Oct 13. Master Class June 25 (DRAM + adv packaging roadmap). NEXX close. Trillium / Precision PECVD design wins at GAA node.
P/E(ttm) Valuation	EXTREME at 39x (range: 11x–39x over 20 quarters). All-time high — prices in >30% CY26 ramp delivering + 2027 strength + sustained mid-teens AGS growth. On Q3E TTM EPS, fwd P/E ~35x; on FY26 consensus EPS ~$11, fwd P/E ~40x. Compresses to 25x quickly if H2 deliveries slip or hyperscaler capex moderates.

Q2 FY2026 Key Data

Record revenue $7.91B (+11% YoY, +13% QoQ); non-GAAP EPS $2.86 (+20%). Non-GAAP GM 50% record (highest in 25+ yrs, +80bps); OM 32.1% (+140bps).
Semi Systems $5.97B (+10%) at 54.8% GM record; AGS $1.67B record (+17%); DRAM $1.7B (+18%). China 27%. OCF $845M; FCF $210M on $635M capex for capacity build.
Q3 guide $8.95B ±$500M (+23% YoY), EPS $3.36 (+36%), GM 50.1%. CY26 semi equipment now guided >30% (raised from >20%); 2027 another record year.

Key Takeaways from Earnings Call

AI WFE inflection in full force; >80% of CY26+CY27 WFE growth from leading-edge foundry logic + DRAM + advanced packaging — all AMAT leadership. Largest customers sharing 8-quarter rolling forecasts; clean room reallocation unlocks 2026 upside.
Three new tools + NEXX acquisition strengthen the portfolio. Trillium ALD (GAA metal gate), Precision PECVD (STI), Sym3Z etch (250+ chambers, fastest ramp in AMAT history). Packaging revenue guided +50% CY26.
EPIC Center opens Fall 2026 with TSMC, Samsung, SK hynix, Micron, Advantest + ASU/RPI/Stanford as founding partners. AGS growth raised to mid-teens (was low-double-digit); 35K+ AIx-connected chambers compound the service annuity.
Margin expansion structural not cyclical. Non-GAAP GM up 800bps since 2013; Semi Systems 54.8% record. Q3 GM guided 50.1% (+10bps QoQ); CFO expects continued gradual lift as new tool launches enrich the portfolio.

Key Segments and Revenue Mix (Q2 FY2026)

Segment	Q2 FY26 Revenue	% of Total	Key Details
Semiconductor Systems	$5,965M	75%	+10% YoY. Foundry/Logic 67%, DRAM 29%, Flash 4%. Non-GAAP GM 54.8% record; OM 35.2%. Effective Q1 FY26, 200mm equipment moved here from AGS.
Applied Global Services	$1,665M	21%	+17% YoY record. GM 34.7%, OM 29.2%. 35K+ AIx-connected chambers; mid-teens growth now expected (raised from low-double-digit). 2/3 installed base under contract at 90% renewal.
Other (incl. Display)	$280M	4%	Flat YoY. Display equipment + 200mm legacy now in Other (no longer separately reported).

Business Model

SUPPLIERS

Precision components vendors
Specialty gases & chemicals
Advanced ceramics & materials
Optics & sensor suppliers
~2,000 direct suppliers

Components / Materials →

APPLIED MATERIALS

Deposition (CVD, PVD, ALD, EPI)
Etch & CMP systems
eBeam inspection & metrology
Advanced packaging (Kinex, NEXX panel)
$30B+ TTM revenue, 35K+ AIx chambers

Equipment / Services → $ Revenue

CUSTOMERS

TSMC (leading-edge foundry)
Samsung (DRAM/HBM, foundry)
SK Hynix, Micron (HBM/DRAM)
Intel (foundry services)
China fabs (ICAPS, mature)

Moat Assessment: NARROW

Process tech breadth + materials engineering depth is the differentiator. #1 in leading-edge foundry logic deposition, #1 DRAM process, #1 advanced packaging — three of four fastest-growing WFE buckets. Lam/TEL/KLA compete in adjacent slices.
EPIC Center co-development locks customers in 2-3 nodes ahead. TSMC, Samsung, SK hynix, Micron, Advantest + ASU/RPI/Stanford as founding partners. Once a tool is qualified into a node, switch costs are 6-12 months of requalification.
China export controls are double-edged. Restricted China Semi Systems to 27% (was 45%), but also blocks Chinese fabs from AMAT’s most advanced tools. Domestic Chinese equipment makers scaling alternatives is the long-tail ICAPS risk.

Stock vs. Earnings — 5-Year Performance

Stock currently $441, up 209% from $142 (5 years ago); TTM OP grew only 30% ($6.9B→$8.9B). P/E re-rated 19x→39x on AI WFE narrative; AMAT positioned in every major inflection (GAA, HBM, advanced packaging).
Navigated -43% drawdown $154→$88 (2022 WFE downcycle); rebuilt to $237 on AI; then -39% to $145 on China fears. +204% from that trough as 2027 visibility stretched and >30% CY26 equipment growth got confirmed this quarter.

Past 5-Year Key Drivers

Equipment intensity rises every node/architecture transition. FinFET→GAA, planar DRAM→6F²/4F²/3D HBM, 2D→panel packaging. HBM needs 3-4x wafer starts per bit; stack heights climbing 12→20 dies — compounds dep/etch/CMP demand at every layer.
Gross margin up 800bps since 2013 (now 50%) on portfolio enrichment + value-based pricing. Each new tool (Trillium, Precision PECVD, Sym3Z, Kinex) is more critical than prior gen; per-tool margin rises as the node advances. Semi Systems GM now 54.8%.
AGS annuity expands faster than the equipment cycle. 35K+ AIx-connected chambers; 2/3 installed base under contract at 90% renewal. Q2 AGS $1.67B record (+17%); mid-teens through-cycle growth now expected (raised).

Quarterly Key Metrics

USD	Q2'24	Q3'24	Q4'24	Q1'25	Q2'25	Q3'25	Q4'25	Q1'26	Q2'26	Q3'26E
Quarter End	Apr 24	Jul 24	Oct 24	Jan 25	Apr 25	Jul 25	Oct 25	Jan 26	Apr 26	Jul 26
Stock Price	$209	$237	$202	$163	$145	$183	$205	$257	$342	$441
Stock QoQ	+35%	+14%	-15%	-20%	-11%	+26%	+12%	+26%	+33%	+29%
Rev YoY	+0%	+5%	+5%	+7%	+7%	+8%	-3%	-2%	+11%	+23%
OM%	29%	29%	29%	30%	31%	31%	30%	30%	32%	32%
R40 (Rev YoY + OM%)	29%	34%	34%	37%	37%	38%	27%	28%	43%	55%
TTM OP ($M)	7,652	7,792	7,867	8,075	8,332	8,623	8,651	8,572	8,926	9,567
TTM OP QoQ	+0%	+2%	+1%	+3%	+3%	+3%	+0%	-1%	+4%	+7%
FCF/OP ttm	89%	84%	95%	73%	70%	68%	66%	72%	60%	63%
Debt/EBITDA	0.6x	0.7x	0.7x	0.7x	0.7x	0.6x	0.7x	0.7x	0.6x	0.6x
P/E(ttm)	24x	27x	23x	21x	17x	21x	23x	25x	33x	39x

Recent Stock Performance & Drivers

Stock $441, +29% post last quarter end from $342 close (Apr 30); +204% from $145 trough (Apr 25). Q2 print + raised CY26 semi equipment guide (>20%→>30%) crystallized the AI WFE narrative; P/E re-rated 33x→39x (20-quarter high).
R40 jumped 28% (Q1) → 43% (Q2) → 55% (Q3E) — cleanest acceleration in 6 quarters. TTM OP $8.93B (+4% QoQ) breaks out of $7.7-8.8B steady-state band; Q3E projects $9.57B (+7%, strongest seq since FY22).
Scorecard climbed 3 (Q1) → 4 (Q2) → 5 (Q3E), best reading since Q4 FY21. R40>40%, R40 accel, OP QoQ accel, FCF/OP>60%, Debt/EBITDA<3.5 all pass at Q3E. Only TTM OP QoQ>10% misses (structural).

Opportunities

Semi equipment guided >30% growth in CY26 (raised from >20%); 2027 another record year. >80% of CY26+CY27 WFE growth from leading-edge foundry logic + DRAM + adv packaging — all AMAT leadership areas.
Advanced packaging guided +50% CY26; NEXX (from ASMPT) acquisition adds panel-level electroplating leadership. #1 in HBM packaging + 3D chiplet stacking; full-flow packaging EPIC Center is industry-only.
AGS growth raised to mid-teens (was low-double-digit); record $1.67B Q2 (+17%). 35K+ AIx-connected chambers + record 300mm utilization drive spares + advanced services; this year tracking ahead of mid-teens.

Challenges

Premium valuation prices in a multi-year ramp. 39x P/E is the highest in AMAT’s 20-quarter history (prior range 11-27x). Hyperscaler capex moderation, memory softness, or clean room slip would compress the multiple sharply.
China export controls + Huawei-letter risk. China at 27% of revenue. Mgmt declined to comment on the recent Huawei-related letter (factored into guide); future restrictions could broaden across “commingled” fabs.
Customer concentration + geo risk. Top-2 customers ~34% of revenue (TSMC + Samsung); Taiwan 27%, Korea 20% in Q2. Any leading-edge-fab disruption in either geography would have severe revenue impact.

Next 12 Months

Q3 FY26 guided $8.95B ±$500M (+23% YoY), EPS $3.36 (+36%); Semi Systems ~$6.9B + AGS ~$1.75B + Other ~$300M. CFO models Q4 → Q1 FY27 “grows linearly” (FQ1’27 = 14-week quarter).
EPIC Center unveiling Oct 12 (Sunnyvale); SEMICON West investor breakfast Oct 13 (SF). Hosts TSMC/Samsung/SK hynix/Micron/Advantest co-dev teams. June 25 Master Class details DRAM + adv packaging roadmap.
NEXX acquisition close + Trillium ALD / Precision PECVD ramp at TSMC + Samsung GAA nodes. Sym3Z etch at 250+ chambers — fastest ramp in AMAT history; etch is one of the fastest-growing businesses this year.

Next 12-24 Months

2027 another record year per mgmt; 2028 visibility building. Customers planning 2-3 nodes out; one customer worried about supply through 2030. Agentic + physical AI layers compound CPU/DRAM/NAND demand on top of generative baseline.
Capacity nearly doubled (US + Europe expansions + new Singapore center); floor space ready, supply chain is the gating factor. AMAT cascades 8-quarter customer forecast to ~2,000 direct suppliers. Headroom to grow beyond CY26.
Capital return compounds. Q2 $765M distributed ($400M repos + $365M divs); 15% dividend hike to $0.53/qtr (9th annual raise, doubled over 4 years). 0.6x Debt/EBITDA leaves room for $5B+ annual return + EPIC + R&D.

Core Metrics Scorecard

	Q4'21	Q1'22	Q2'22	Q3'22	Q4'22	Q1'23	Q2'23	Q3'23	Q4'23	Q1'24	Q2'24	Q3'24	Q4'24	Q1'25	Q2'25	Q3'25	Q4'25	Q1'26	Q2'26	Q3'26E
Quarter End	Oct 21	Jan 22	Apr 22	Jul 22	Oct 22	Jan 23	Apr 23	Jul 23	Oct 23	Jan 24	Apr 24	Jul 24	Oct 24	Jan 25	Apr 25	Jul 25	Oct 25	Jan 26	Apr 26	Jul 26
R40 > 40%	✅	✅	✅																✅	✅
R40 accelerate					✅				✅		✅	✅		✅	✅	✅		✅	✅	✅
TTM OP QoQ > 10%	✅
TTM OP QoQ accelerate					✅	✅	✅		✅	✅	✅	✅		✅	✅	✅			✅	✅
TTM FCF/OP > 60%	✅	✅	✅	✅			✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅		✅
Debt/EBITDA < 3.5	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅
Total passes	4	3	3	2	3	2	3	2	4	3	4	4	2	4	4	4	2	3	4	5
Stock QoQ	-10%	+22%	-16%	-31%	-10%	+18%	+27%	+18%	-3%	+11%	+35%	+14%	-15%	-20%	-11%	+26%	+12%	+26%	+33%	+29%
P/E(ttm)	19x	21x	17x	12x	11x	13x	16x	19x	17x	18x	24x	27x	23x	21x	17x	21x	23x	25x	33x	39x

TTM OP QoQ >10% almost never passes (1 of 20) — TTM OP moves in 0-7% increments at the $8-9B level. This caps the scorecard at 5 passes. Current 5-pass reading at Q3E equals the best in 5 years (last seen Q4 FY21) and coincides with stock at all-time high $441 / P/E 39x.
R40 accel + OP accel are the swing metrics. Past 4-pass quarters (Q4’22, Q4’23, Q2’24, Q1-Q3’25, Q2’26) all had R40 + OP both accelerating and aligned with strongest stock moves (+18% to +35% QoQ). Current 3→4→5 passes signals inflection up.
FCF/OP + Debt/EBITDA pass nearly every quarter — they don’t swing the scorecard. $5B+ TTM FCF + 0.6x leverage are baseline strengths; stock is driven by R40 trend + revenue acceleration. $765M Q2 capital return adds natural demand.

Chart: R40 vs Stock Price (Since 2020)

Chart: Scorecard Total Passes vs Stock Price (Since 2020)

Source: SEC EDGAR annual and quarterly filings, company earnings conference calls and presentations, Q2 FY2026 earnings release + shareholder snapshot.

Disclaimer: This report is for educational purposes only. NO investment advice.