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

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

Bob Karr

Wed, August 26, 2026 at 9:29 PM GMT+3 5 min read

• AMAT +0.54%

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.

AMAT Surpasses Broader Market Growth

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 Remains Optimistic

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.

The $500 million Singapore expansion is particularly noteworthy, and it more than doubles advanced cleanroom capacity there. This reflects the management's expectations of demand remaining robust well beyond the existing cycle.

The Bear Case: Rising Expectations Leave Little Room for Error

While Wall Street remains optimistic about the company's growth, it opines that the biggest threat is not weak demand. It is rising expectations about whether Applied Materials, Inc. (NASDAQ:AMAT) will be able to maintain the existing growth and margin trajectory amidst such a healthy acceleration.

Applied Materials, Inc. (NASDAQ:AMAT) expects revenue growth of ~51% and EPS growth of 85% in Q4, with the firm anticipating significant long-term earnings expansion. Any sort of slowdown in AI-related semiconductor spending, subdued DRAM investment, or delays in advanced-node capacity additions can significantly weigh on the stock.

Applied Materials, Inc. (NASDAQ:AMAT) vs. Lam Research Corporation (NASDAQ:LRCX): A Comparison

Applied Materials and Lam Research continue to benefit from higher AI-backed semiconductor investment, mainly in memory and advanced chip manufacturing. AMAT's Q3 FY2026 revenue touched $9.12 billion, implying a growth of 25% YoY, with its Semiconductor Systems revenue rising by ~27% YoY. Even though Lam gives better exposure to etch and deposition, Applied Materials enjoys a broader materials-engineering portfolio. This portfolio spans deposition, etch, inspection, and advanced packaging. Notably, AMAT has a competitive edge that revolves around its breadth, offering several ways to participate as AI chips are becoming complex.

Furthermore, short interest is also supporting AMAT. Applied Materials has ~1.80% of float sold short, compared to 2.41% for LRCX. This means that investors remain less skeptical about AMAT. However, the difference is marginal and cannot be treated as a bullish signal. As per Insider Monkey's data, 138 hedge funds were long on Applied Materials at the end of Q1 2026, up from 111 funds at the end of Q4 2025. Q2 didnt see much change either, with 137 hedge funds holding positions. Comparatively, 139 hedge funds reported owning positions in Lam Research at the end of Q2 2026.

Conclusion

Applied Materials is being supported by robust AI-backed semiconductor investment cycle as there remains increased demand for DRAM, HBM, leading-edge logic, and advanced packaging. Finally, UBS remains optimistic, thanks to the capacity expansion as well as continued market-share gains, mainly in the AI-related applications. That being said, higher expectations might result in downside risks if the AI spending, DRAM investment, or advanced-node capacity additions begin to slow down.

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