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Can AMAT's Investment Strategy Lift Future Cash Flow Growth?
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Key Takeaways
AMAT's lower cash flow reflected investments to expand manufacturing and strengthen supply chains.
Applied Materials expects AI-led demand to drive semiconductor equipment growth above 30% in 2026.
AMAT returned $765 million via buybacks and dividends while funding capacity expansion.
Applied Materials' (AMAT - Free Report) operating cash flow declined to $845 million from $1.686 billion in the prior quarter, and free cash flow declined to $210 million from $1.04 billion in the prior quarter in the second quarter of fiscal 2026. AMAT’s expanding manufacturing capacity and strengthening supply chain readiness can be a probable reason.
AMAT is investing in building plans, inventory positions and logistics capacity to ensure it can meet accelerating customer demand. Customers are providing longer-term demand forecasts, allowing Applied Materials to prepare manufacturing resources well in advance and support expected industry growth through 2027 and beyond.
Applied Materials is seeing AI adoption broaden and diversify, which is pushing wafer fab equipment spending toward leading-edge foundry-logic, DRAM and advanced packaging. Management expects these three areas to drive more than 80% of year-over-year total WFE growth in calendar 2026, with a similar profile in 2027.
The company also expects its semiconductor equipment business to grow more than 30% in 2026 as customers expand cleanroom capacity and accelerate equipment pull-ins. This demand mix aligns with Applied Materials’ stated leadership positions and supports a more durable multi-year spending cycle than prior compute-driven upturns, suggesting future cash flow strength.
Beyond all these, Applied Materials’ ability to generate sufficient cash to return capital to shareholders is a green flag. During the second quarter of fiscal 2026, Applied Materials distributed $765 million through $400 million of share repurchases and $365 million in dividends while simultaneously funding investments in production capacity and supply chain capabilities.
How Competitors Fare Against AMAT
Applied Materials has an unmatched breadth across semiconductor manufacturing. Applied Materials offers solutions across deposition, materials engineering, etch, metrology, inspection, packaging and process integration, allowing customers to optimize manufacturing flows using a single vendor across multiple stages of production. This broad portfolio positions the company to capture a larger share of customer spending as semiconductor manufacturing becomes increasingly materials-intensive, while also keeping its competitors like KLA Corporation (KLAC - Free Report) and Lam Research (LRCX - Free Report) .
KLA Corporation remains a dominant player in process control, wafer inspection and yield management solutions, while Lam Research competes with Applied Materials across deposition and etch technologies, including advanced atomic layer deposition systems used in leading-edge semiconductor manufacturing. Lam Research secured multiple critical etch wins at a major DRAM manufacturer with its new Akara etch system, which supports 3D DRAM architectures. This was supported by LRCX’s customer investments in DDR5, LPDDR5 and high-bandwidth memory.
AMAT’s Price Performance, Valuation and Estimates
Shares of Applied Materials have surged 159.9% year to date compared with the Zacks Electronics - Semiconductors industry’s growth of 56.1%.
AMAT YTD Performance Chart
Image Source: Zacks Investment Research
From a valuation standpoint, Applied Materials trades at a forward price-to-sales ratio of 13.67X, higher than the industry’s average of 10.13X.
AMAT Forward 12-Month (P/S) Valuation Chart
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Applied Materials’ fiscal 2026 and 2027 earnings implies year-over-year growth of 28% and 32%, respectively. The estimates for fiscal 2026 and 2027 have been revised upward over the past 30 days.
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Can AMAT's Investment Strategy Lift Future Cash Flow Growth?
Key Takeaways
Applied Materials' (AMAT - Free Report) operating cash flow declined to $845 million from $1.686 billion in the prior quarter, and free cash flow declined to $210 million from $1.04 billion in the prior quarter in the second quarter of fiscal 2026. AMAT’s expanding manufacturing capacity and strengthening supply chain readiness can be a probable reason.
AMAT is investing in building plans, inventory positions and logistics capacity to ensure it can meet accelerating customer demand. Customers are providing longer-term demand forecasts, allowing Applied Materials to prepare manufacturing resources well in advance and support expected industry growth through 2027 and beyond.
Applied Materials is seeing AI adoption broaden and diversify, which is pushing wafer fab equipment spending toward leading-edge foundry-logic, DRAM and advanced packaging. Management expects these three areas to drive more than 80% of year-over-year total WFE growth in calendar 2026, with a similar profile in 2027.
The company also expects its semiconductor equipment business to grow more than 30% in 2026 as customers expand cleanroom capacity and accelerate equipment pull-ins. This demand mix aligns with Applied Materials’ stated leadership positions and supports a more durable multi-year spending cycle than prior compute-driven upturns, suggesting future cash flow strength.
Beyond all these, Applied Materials’ ability to generate sufficient cash to return capital to shareholders is a green flag. During the second quarter of fiscal 2026, Applied Materials distributed $765 million through $400 million of share repurchases and $365 million in dividends while simultaneously funding investments in production capacity and supply chain capabilities.
How Competitors Fare Against AMAT
Applied Materials has an unmatched breadth across semiconductor manufacturing. Applied Materials offers solutions across deposition, materials engineering, etch, metrology, inspection, packaging and process integration, allowing customers to optimize manufacturing flows using a single vendor across multiple stages of production. This broad portfolio positions the company to capture a larger share of customer spending as semiconductor manufacturing becomes increasingly materials-intensive, while also keeping its competitors like KLA Corporation (KLAC - Free Report) and Lam Research (LRCX - Free Report) .
KLA Corporation remains a dominant player in process control, wafer inspection and yield management solutions, while Lam Research competes with Applied Materials across deposition and etch technologies, including advanced atomic layer deposition systems used in leading-edge semiconductor manufacturing. Lam Research secured multiple critical etch wins at a major DRAM manufacturer with its new Akara etch system, which supports 3D DRAM architectures. This was supported by LRCX’s customer investments in DDR5, LPDDR5 and high-bandwidth memory.
AMAT’s Price Performance, Valuation and Estimates
Shares of Applied Materials have surged 159.9% year to date compared with the Zacks Electronics - Semiconductors industry’s growth of 56.1%.
AMAT YTD Performance Chart
Image Source: Zacks Investment Research
From a valuation standpoint, Applied Materials trades at a forward price-to-sales ratio of 13.67X, higher than the industry’s average of 10.13X.
AMAT Forward 12-Month (P/S) Valuation Chart
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Applied Materials’ fiscal 2026 and 2027 earnings implies year-over-year growth of 28% and 32%, respectively. The estimates for fiscal 2026 and 2027 have been revised upward over the past 30 days.
Image Source: Zacks Investment Research
Applied Materials currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.