Applied Materials' Q3 Earnings Beat Estimates, Revenues Rise Y/Y

AMAT Delivers Record Quarter as AI Build-Out Accelerates

Applied Materials delivered a record third quarter, with management highlighting the rapid global build-out of AI infrastructure and its strong positioning in leading-edge foundry-logic, DRAM and advanced packaging. The company said the quarter included its highest sequential revenue growth in company history. Demand for semiconductor equipment has strengthened as chipmakers address the supply-demand gap for advanced semiconductors and expand manufacturing capacity.

The company also highlighted improving demand visibility from its largest customers. These customers are providing rolling eight-quarter forecasts, allowing Applied Materials to better prepare its supply chain and field organization for future equipment demand. Management said this increased visibility gives it high confidence that 2027 will be another year of strong growth.

Applied Materials expects leading-edge foundry-logic, DRAM and advanced packaging to account for around 80% of wafer fabrication equipment growth in 2026 and 2027. The company also now expects advanced packaging revenues to increase more than 70% in fiscal 2026, supported by AI-related demand and its strong positions in high-bandwidth memory and 3D chiplet stacking.

AMAT Segment Mix Reflects Strength Across Core Markets

Segment performance was led by Semiconductor Systems, which generated $7.04 billion in revenues, up 27% from $5.56 billion reported a year ago. Foundry, logic and other applications accounted for 67% of Semiconductor Systems revenues, while DRAM represented 26% and flash memory 7%. Semiconductor Systems’ operating margin increased to 37.7% from 33% in the prior-year quarter.

Within Semiconductor Systems, Applied Materials reported record foundry-logic revenues, while DRAM, including HBM packaging, increased 52% year over year. The company’s strong exposure to advanced packaging and memory positions it to benefit from the increasing semiconductor requirements of AI infrastructure.

Applied Global Services (AGS) generated record revenues of $1.78 billion, up 22% year over year. The increase reflected growth in subscription services and strong transactional parts demand. AGS reported a gross margin of 35.6% and an operating margin of 30.1%, up 180 basis points (bps) and 280 bps, respectively, from the year-ago quarter.

Applied Materials continues to expand its AI-enabled service capabilities. More than 37,000 chambers in the field are connected to its AIx software, while the company expects AGS revenues to grow more than 20% in fiscal 2026. Management also expects its process diagnostics and control business to grow more than 50% this year.

Applied Materials Expands Operating Leverage and Profitability

On a non-GAAP basis, Applied Materials reported a gross margin of 50.4%, up 150 basis points year over year. Non-GAAP operating income increased to $3.10 billion, resulting in an operating margin of 34% compared with 30.7% in the prior-year quarter. Non-GAAP net income rose 41% to $2.80 billion.

The company achieved its 13th consecutive quarter of year-over-year gross margin expansion, reflecting the increasing value of its materials engineering solutions and continued operating leverage. Semiconductor Systems’ non-GAAP operating margin expanded to 38% from 33.2% a year ago, while AGS maintained a 30.1% non-GAAP operating margin.

Applied Materials is also investing in capacity to support longer-term demand. The company plans to double quarterly system manufacturing capacity by 2028, while continuing to develop products that increase wafer output per square meter of cleanroom space.

AMAT’s Balance Sheet and Cash Flow

As of July 26, 2026, Applied Materials had $9.4 billion in cash, cash equivalents and short-term investments compared with $8.24 billion at the end of the previous quarter. Long-term debt was $5.25 billion, down from $6.46 billion at the end of fiscal 2025.

Applied Materials generated a record $3.04 billion of cash from operations during the quarter. Capital expenditures totaled $707 million, resulting in $2.33 billion of non-GAAP free cash flow compared with $2.05 billion in the year-ago quarter.

The company returned $860 million to shareholders, including $440 million in share repurchases and $420 million in dividends. Applied Materials had $12.8 billion remaining under its share repurchase authorization and continues to expect to distribute 80% to 100% of free cash flow to shareholders.

Applied Materials Guides Higher Q4 Revenues & Earnings

For the fourth quarter of fiscal 2026, Applied Materials expects total revenues of approximately $10.25 billion (+/-$500 million), implying 51% year-over-year growth at the midpoint. The company expects non-GAAP earnings of $4.02 per share (+/- 20 cents), indicating 85% year-over-year growth at the midpoint.

Within the outlook, Semiconductor Systems revenues are expected to be approximately $7.9 billion, implying an increase of 62% year over year, while AGS revenues are projected at approximately $1.84 billion, indicating 22% growth year over year. Other revenues are expected to be around $510 million, primarily reflecting Display revenues.

Applied Materials expects fourth-quarter non-GAAP gross margin of approximately 50.4%, non-GAAP operating expenses of around $1.58 billion and a non-GAAP tax rate of approximately 11%. Management also noted that first-quarter fiscal 2027 will contain 14 weeks, resulting in a higher-than-average increase in operating expenses.

With AI infrastructure investment accelerating, strong demand for DRAM and leading-edge foundry-logic and increasing adoption of advanced packaging, Applied Materials expects continued strong performance in the second half of fiscal 2026. Management also expects another strong growth year in fiscal 2027, supported by greater customer visibility and additional manufacturing capacity investments.

AMAT Zacks Rank & Other Stocks to Consider

Currently, Applied Materials carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader Zacks Computer and Technology sector include Affirm AFRM, NVIDIA NVDA and Analog Devices ADI, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Affirm have appreciated 5.2% in the year-to-date period. AFRM is set to report the fourth quarter of fiscal 2026 results on Aug. 27.

Shares of NVIDIA have returned 20.8% in the year-to-date period. NVDA is slated to report second-quarter 2026 results on Aug. 26.

Analog Devices shares have jumped 40.6% in the year-to-date period. ADI is set to report first-quarter fiscal 2027 results on Aug. 19.

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