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Can Applied Materials Sustain Strong AGS Growth Beyond 2026?
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Key Takeaways
Applied Materials' AGS revenues jumped 22% to a record $1.78B, with margins up 280 basis points.
AGS demand is supported by full-capacity leading-edge fabs and rising utilization across other markets.
Applied Materials expects AGS revenue growth above 20% in 2026 and mid-teens growth longer term.
Applied Materials’ (AMAT - Free Report) Applied Global Services (“AGS”) business has shown consistent growth in the past few quarters. In the third quarter of fiscal 2026, AGS benefited from increasing demand for services that help semiconductor manufacturers improve fab performance and accelerate production ramps. AGS revenues reached a record $1.78 billion, up 22% year over year, and its operating margin improved 280 basis points year over year.
AMAT’s AGS is benefiting from the semiconductor industry’s focus on increasing output and yield. Applied Materials’ management said customers are simultaneously bringing new fabs online and optimizing existing production facilities. More than 37,000 chambers are connected to Applied Materials’ AIx software, which supports AI-powered monitoring, diagnostics and predictive analytics for fab operations.
The company has nearly doubled manufacturing space over the past several years and plans to double quarterly system output from current levels by 2028. It added more than 1,500 manufacturing and AGS support employees in the third quarter of fiscal 2026 and plans further capacity to meet demand through 2030. This visibility can improve supply-chain readiness and execution across customer ramps.
Demand conditions also remain supportive. Management said most leading-edge logic and DRAM fabs are operating at full capacity, while utilization is increasing across other markets. Customers are also providing longer-term forecasts enabling AGS revenues to grow more than 20% in 2026 and at a sustainable mid-teens annual rate over the longer term. For the fourth quarter of fiscal 2026, Applied Materials expects AGS revenues to be approximately $1.84 billion.
How Competitors Fare Against AMAT
Since AMAT serves its own installed base through the AGS business, there are no competitors in this segment. But in the broader product category, AMAT competes with Lam Research (LRCX - Free Report) and ASML Holding (ASML - Free Report) .
ASML is experiencing strong demand from DRAM and logic customers, which are ramping leading-edge nodes using ASML’s NXE:3800E EUV systems. Additionally, ASML noted that multiple DRAM customers are adopting EUV lithography, which helps in shortening cycle time and lowering costs. However, AMAT offers a broad range of WFE products that do not compete directly with ASML and Lam Research, making it a stock worth holding.
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. Additionally, Lam Research’s Aether dry-resist technology was recently selected as the production tool of record for a leading DRAM customer, thereby securing a foothold in this high-growth segment.
AMAT’s Price Performance, Valuation and Estimates
Applied Materials shares have climbed 65% year to date, outperforming the Zacks Electronics - Semiconductors industry’s appreciation of 23.3%.
AMAT YTD Performance Chart
Image Source: Zacks Investment Research
The rise in stock price has made AMAT stock trade at a premium. Currently, AMAT has a price-to-sales (P/S) multiple of 7.61X, which is much above the industry’s P/S of 4.78X. AMAT’s value score of F also suggests its overvaluation.
AMAT Forward 12-Month (P/S) Valuation Chart
Image Source: Zacks Investment Research
Applied Materials expects non-GAAP earnings of $4.02 per share (+/- 20 cents), indicating 85% year-over-year growth at the midpoint. The Zacks Consensus Estimate suggests year-over-year growth of 86.6%. The estimate has been revised upward in the past 30 days.
View the Zacks #1 Rank List
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Can Applied Materials Sustain Strong AGS Growth Beyond 2026?
Key Takeaways
Applied Materials’ (AMAT - Free Report) Applied Global Services (“AGS”) business has shown consistent growth in the past few quarters. In the third quarter of fiscal 2026, AGS benefited from increasing demand for services that help semiconductor manufacturers improve fab performance and accelerate production ramps. AGS revenues reached a record $1.78 billion, up 22% year over year, and its operating margin improved 280 basis points year over year.
AMAT’s AGS is benefiting from the semiconductor industry’s focus on increasing output and yield. Applied Materials’ management said customers are simultaneously bringing new fabs online and optimizing existing production facilities. More than 37,000 chambers are connected to Applied Materials’ AIx software, which supports AI-powered monitoring, diagnostics and predictive analytics for fab operations.
The company has nearly doubled manufacturing space over the past several years and plans to double quarterly system output from current levels by 2028. It added more than 1,500 manufacturing and AGS support employees in the third quarter of fiscal 2026 and plans further capacity to meet demand through 2030. This visibility can improve supply-chain readiness and execution across customer ramps.
Demand conditions also remain supportive. Management said most leading-edge logic and DRAM fabs are operating at full capacity, while utilization is increasing across other markets. Customers are also providing longer-term forecasts enabling AGS revenues to grow more than 20% in 2026 and at a sustainable mid-teens annual rate over the longer term. For the fourth quarter of fiscal 2026, Applied Materials expects AGS revenues to be approximately $1.84 billion.
How Competitors Fare Against AMAT
Since AMAT serves its own installed base through the AGS business, there are no competitors in this segment. But in the broader product category, AMAT competes with Lam Research (LRCX - Free Report) and ASML Holding (ASML - Free Report) .
ASML is experiencing strong demand from DRAM and logic customers, which are ramping leading-edge nodes using ASML’s NXE:3800E EUV systems. Additionally, ASML noted that multiple DRAM customers are adopting EUV lithography, which helps in shortening cycle time and lowering costs. However, AMAT offers a broad range of WFE products that do not compete directly with ASML and Lam Research, making it a stock worth holding.
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. Additionally, Lam Research’s Aether dry-resist technology was recently selected as the production tool of record for a leading DRAM customer, thereby securing a foothold in this high-growth segment.
AMAT’s Price Performance, Valuation and Estimates
Applied Materials shares have climbed 65% year to date, outperforming the Zacks Electronics - Semiconductors industry’s appreciation of 23.3%.
AMAT YTD Performance Chart
Image Source: Zacks Investment Research
The rise in stock price has made AMAT stock trade at a premium. Currently, AMAT has a price-to-sales (P/S) multiple of 7.61X, which is much above the industry’s P/S of 4.78X. AMAT’s value score of F also suggests its overvaluation.
AMAT Forward 12-Month (P/S) Valuation Chart
Image Source: Zacks Investment Research
Applied Materials expects non-GAAP earnings of $4.02 per share (+/- 20 cents), indicating 85% year-over-year growth at the midpoint. The Zacks Consensus Estimate suggests year-over-year growth of 86.6%. The estimate has been revised upward in 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.