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2 AI Pick-and-Shovel Stocks Poised to Be the Next NVIDIA
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Key Takeaways
AMAT gains from AI chip demand, targeting 20% growth with strong supply chain and capacity expansion.
LRCX benefits from memory chip investment surge, guiding solid revenue and margins for the March 2026 quarter.
Applied Materials and Lam Research posted strong Q1 metrics, highlighting profitability and growth momentum.
With the rise of artificial intelligence (AI), NVIDIA Corporation (NVDA - Free Report) has experienced significant growth. Demand for its graphics processing units (GPUs) for powering new AI applications has increased among leading tech companies, while its cutting-edge Blackwell chips are also seeing exceptionally strong demand.
However, in the first quarter of 2026, NVIDIA’s shares declined by over 5% amid geopolitical shocks that dented investors’ sentiment. Apprehensions emerged that a possible slowdown in AI infrastructure spending could derail the company’s growth trajectory, while stiff competition from rivals such as Advanced Micro Devices, Inc. (AMD - Free Report) and Arm Holdings plc (ARM - Free Report) raised concerns about potential pressure on its market share.
But “pick-and-shovel” AI players Applied Materials, Inc. (AMAT - Free Report) and Lam Research Corporation (LRCX - Free Report) capitalized on the AI boom, rising 33% and 24.8%, respectively, in the first quarter – defying the broader downward trend in the tech sector. Both companies are now well-poised to replicate NVIDIA’s long-term success, banking on a scalable business model. Let’s see in detail –
Applied Materials Leads in AI-Driven Semiconductor Growth
Increasing AI investments are boosting sales of Applied Materials’ state-of-the-art semiconductor equipment. Gary Dickerson, President and CEO of Applied Materials, said that the company leads in high-performance, energy-efficient chip equipment, and is targeting 20%+ growth this year. The company has already bolstered its supply chain and improved manufacturing capacity to meet growing demand.
Applied Materials expects revenues for the second quarter of fiscal 2026 to come at $7.65 billion, with a range of plus or minus $500 million, building on first-quarter revenues of $7.01 billion for the period ending on Jan. 25, 2026. This indicates sustained growth momentum, according to ir.appliedmaterials.com.
Applied Materials stayed highly profitable, with a non-GAAP gross margin of 49.1% in the fiscal first quarter, and generated $1.69 billion in cash from operations, which can fund further growth initiatives. The company earned innovation and technology leadership awards, highlighting customer trust, and continues to benefit from long-term secular trends in the semiconductor industry.
As a result, the Applied Materials’ expected earnings growth rate for the current and next year are 17.8% and 26.4%, respectively. The Zacks Consensus Estimate of $11.1 for AMAT’s earnings per share (EPS) is up 12.1% year over year.
Image Source: Zacks Investment Research
Lam Research Set to Gain From Memory Chip Growth
Lam Research is well-positioned for sustained growth, supported by its expanding product offerings. The company has guided for solid margins, an increase in earnings, and healthy revenues of around $5.7 billion for the March 2026 quarter, according to newsroom.lamresearch.com.
Lam Research ended 2025 on an encouraging note, with revenues for the December quarter coming in at $5.34 billion, with a non-GAAP gross margin of 49.7%. Strong operational execution helped fuel net income to $1.59 billion, highlighting solid profitability.
Meanwhile, rising investments in equipment to expand memory chip production by the likes of Micron Technology, Inc. (MU - Free Report) are likely to benefit leading semiconductor equipment provider Lam Research. Consequently, the company’s expected earnings growth rate for the current and next year are 26.6% and 26.9%, respectively. The Zacks Consensus Estimate of $5.24 for LRCX’s EPS is up 32.3% year over year (read more: Up 15%+ in Q1: 2 AI Stocks Still Flashing "Strong Buy" for Q2).
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2 AI Pick-and-Shovel Stocks Poised to Be the Next NVIDIA
Key Takeaways
With the rise of artificial intelligence (AI), NVIDIA Corporation (NVDA - Free Report) has experienced significant growth. Demand for its graphics processing units (GPUs) for powering new AI applications has increased among leading tech companies, while its cutting-edge Blackwell chips are also seeing exceptionally strong demand.
However, in the first quarter of 2026, NVIDIA’s shares declined by over 5% amid geopolitical shocks that dented investors’ sentiment. Apprehensions emerged that a possible slowdown in AI infrastructure spending could derail the company’s growth trajectory, while stiff competition from rivals such as Advanced Micro Devices, Inc. (AMD - Free Report) and Arm Holdings plc (ARM - Free Report) raised concerns about potential pressure on its market share.
But “pick-and-shovel” AI players Applied Materials, Inc. (AMAT - Free Report) and Lam Research Corporation (LRCX - Free Report) capitalized on the AI boom, rising 33% and 24.8%, respectively, in the first quarter – defying the broader downward trend in the tech sector. Both companies are now well-poised to replicate NVIDIA’s long-term success, banking on a scalable business model. Let’s see in detail –
Applied Materials Leads in AI-Driven Semiconductor Growth
Increasing AI investments are boosting sales of Applied Materials’ state-of-the-art semiconductor equipment. Gary Dickerson, President and CEO of Applied Materials, said that the company leads in high-performance, energy-efficient chip equipment, and is targeting 20%+ growth this year. The company has already bolstered its supply chain and improved manufacturing capacity to meet growing demand.
Applied Materials expects revenues for the second quarter of fiscal 2026 to come at $7.65 billion, with a range of plus or minus $500 million, building on first-quarter revenues of $7.01 billion for the period ending on Jan. 25, 2026. This indicates sustained growth momentum, according to ir.appliedmaterials.com.
Applied Materials stayed highly profitable, with a non-GAAP gross margin of 49.1% in the fiscal first quarter, and generated $1.69 billion in cash from operations, which can fund further growth initiatives. The company earned innovation and technology leadership awards, highlighting customer trust, and continues to benefit from long-term secular trends in the semiconductor industry.
As a result, the Applied Materials’ expected earnings growth rate for the current and next year are 17.8% and 26.4%, respectively. The Zacks Consensus Estimate of $11.1 for AMAT’s earnings per share (EPS) is up 12.1% year over year.
Image Source: Zacks Investment Research
Lam Research Set to Gain From Memory Chip Growth
Lam Research is well-positioned for sustained growth, supported by its expanding product offerings. The company has guided for solid margins, an increase in earnings, and healthy revenues of around $5.7 billion for the March 2026 quarter, according to newsroom.lamresearch.com.
Lam Research ended 2025 on an encouraging note, with revenues for the December quarter coming in at $5.34 billion, with a non-GAAP gross margin of 49.7%. Strong operational execution helped fuel net income to $1.59 billion, highlighting solid profitability.
Meanwhile, rising investments in equipment to expand memory chip production by the likes of Micron Technology, Inc. (MU - Free Report) are likely to benefit leading semiconductor equipment provider Lam Research. Consequently, the company’s expected earnings growth rate for the current and next year are 26.6% and 26.9%, respectively. The Zacks Consensus Estimate of $5.24 for LRCX’s EPS is up 32.3% year over year (read more: Up 15%+ in Q1: 2 AI Stocks Still Flashing "Strong Buy" for Q2).
Image Source: Zacks Investment Research
While Applied Materials has a Zacks Rank #2 (Buy), Lam Research has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.