Applied Materials Posts Record $9.12B Revenue on AI Chip Demand But Stock Falls 5%

Applied Materials Earnings Beat Estimates Amid Surging AI Chip Demand

Applied Materials reported record third-quarter revenue of $9.12 billion, marking a 25% increase from a year earlier and surpassing analyst estimates of $8.99 billion2

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. The semiconductor manufacturing equipment supplier earned $2.54 billion in the third quarter, or $3.17 per diluted share, against year-ago figures of $1.78 billion, or $2.22 per diluted share2

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. Adjusted earnings per share reached $3.50, beating Wall Street's consensus estimate of $3.403

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. Revenue rose 15% sequentially, reflecting the strongest sequential growth in the company's history3

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Semiconductor Systems Revenue Hits $7 Billion on Advanced AI Chips

The semiconductor systems segment contributed $7.04 billion to the quarter's results, a substantial jump from $5.56 billion in the same period last year2

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. Growth was driven by capacity additions for gate-all-around and FinFET technologies, critical for manufacturing advanced AI chips4

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. DRAM revenue, including High Bandwidth Memory packaging, jumped 52% from a year earlier to a record, accounting for 26% of semiconductor systems revenue, up from 22% one year earlier3

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. CEO Gary Dickerson stated, "As the rapid global adoption of AI drives unprecedented demand for our materials engineering solutions, we are further raising our semiconductor systems revenue expectations for calendar 2026 and are confident we will grow faster than the market this year"2

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Record Margins Signal Pricing Power in AI-Driven Market

Adjusted gross margin reached a record 50.4%, up 150 basis points year over year, marking the company's 13th consecutive quarter of year-over-year gross margin expansion4

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. Adjusted operating margin also hit a record 34%, up 330 basis points from a year earlier4

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. Semiconductor systems adjusted gross margin rose 190 basis points year over year to 55.4%4

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. Since CEO Gary Dickerson took over in 2013, gross margins have expanded 800 basis points, driven by value-based pricing on increasingly complex tools and manufacturing scale from new facilities5

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Strong Guidance Points to Continued AI Supercycle Momentum

Applied Materials forecast fourth-quarter revenue of $10.25 billion, plus or minus $500 million, compared with analysts' average estimate of $9.54 billion1

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. The company expects adjusted earnings of $4.02 per share, plus or minus $0.20, versus analyst estimates of $3.71 per share2

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. Applied Materials raised its semiconductor equipment growth outlook to more than 30% for calendar 2026, up from a prior forecast of more than 20%2

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. Management indicated the rapid buildout of AI infrastructure is giving the company unusually strong visibility into future demand, with some customer conversations now extending to 20304

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Stock Fell Despite Beat as Elevated Expectations Weigh on Sentiment

Applied Materials stock fell about 5% in after-hours trading on Thursday, despite beating estimates on both earnings and revenue2

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. Investors likely deemed the results weren't impressive enough given the high bar set by the AI boom and elevated expectations3

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. Stifel analyst Brian Chin suggested market expectations for Applied Materials were elevated because its biggest rivals, Lam Research and KLA Corp, both posted strong quarterly results with bullish forecasts last week3

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. The stock had surged 183.97% over the past 12 months prior to the earnings announcement4

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Capacity Expansion Plans Target Doubling Output by 2028

Chief Financial Officer Brice Hill told analysts that Applied Materials is targeting the capacity to produce twice its current quarterly semiconductor system volume by 2028 and has begun laying the groundwork for an additional manufacturing buildout intended to keep pace with demand into 20302

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. The company plans to ramp up manufacturing capacity by expanding existing facilities as well as manufacturing and customer support teams in response to long-term demand signals3

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. Applied Materials expects continued demand across the DRAM market, leading-edge foundry-logic, and advanced packaging2

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. Management expects AI infrastructure spending to support multiyear growth in leading-edge logic, DRAM, and advanced packaging, with those three areas expected to represent about 80% of wafer fab equipment growth in 2026 and 20274

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China Risk and Export Controls Remain Key Considerations

China accounted for 26% of semiconductor systems and Applied Global Services revenue4

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. Applied Materials expects growth in the region during 2026, supported by 28-nanometer foundry investment4

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. Management guided that China and ICAPS business will remain "flat to slightly increase" through calendar year 20265

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. However, Samsung and SK Hynix are testing Chinese equipment maker AMEC as a hedge against export controls, a dynamic that could reshape competitive dynamics for the semiconductor equipment supplier5

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. The company's 24% revenue share from China remains vulnerable to policy shifts and represents a key risk factor5

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