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Can Applied Materials Sustain Momentum in Its AGS Business?
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Key Takeaways
AMAT's AGS revenues hit a record $1.78 billion, up 22% year over year in fiscal Q3 2026.
More than 37,000 chambers connect to Applied Materials' AIx software.
AMAT expects AGS revenues to grow more than 20% in 2026 and mid-teens annually over the long term.
Applied Materials’ (AMAT - Free Report) Applied Global Services (“AGS”) is growing alongside fab utilization and the need to improve output, yield and ramp speed. AMAT’s third-quarter fiscal 2026 revenues reached a record $1.78 billion, up 22% year over year, while non-GAAP operating margin rose to 30.1% from 27.3%. More than 37,000 chambers are connected to AIx software for monitoring, diagnostics and predictive analytics.
AMAT’s AGS business also benefits from the doubling of its manufacturing space over the past several years. AMAT plans to double quarterly system output from current levels by 2028. AMAT added more than 1,500 manufacturing and AGS support employees in the third quarter of fiscal 2026 and is planning further capacity for demand through 2030. This visibility can improve supply-chain readiness and execution across customer ramps.
Applied Materials' recurring AGS revenues, more than 37,000 AIx-connected chambers and value-based pricing provide operating support for that durability. AGS is becoming an important part of Applied Materials’ long-term earnings model. Its combination of subscription services, parts demand, advanced AI-enabled services and expanding margins gives AMAT a growing stream of revenue associated with supporting customers throughout their manufacturing operations.
In the third quarter of fiscal 2026, China represented 28% of its total revenues in the third quarter of fiscal 2026, up from 27% in the second quarter, which includes Semiconductor Systems plus AGS revenues. AMAT now expects China revenues to increase in 2026, led by 28-nanometer foundry-logic investment. AMAT now expects AGS revenues to grow more than 20% in 2026 and maintain a sustainable long-term annual growth rate in the mid-teens.
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, who are ramping leading-edge nodes using ASML’s NXE:3800E EUV systems. Additionally, ASML Holding 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 the 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, securing a foothold in this high-growth segment.
AMAT’s Price Performance, Valuation and Estimates
Applied Materials shares have surged 102.6% year to date, outperforming the Zacks Electronics - Semiconductors industry’s appreciation of 36.7%.
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 9.20X, which is much above the industry’s P/S of 5.14X. 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 87%. The estimates have been revised upward in the past 60 days.
View the Zacks #1 Rank List
Image: Bigstock
Can Applied Materials Sustain Momentum in Its AGS Business?
Key Takeaways
Applied Materials’ (AMAT - Free Report) Applied Global Services (“AGS”) is growing alongside fab utilization and the need to improve output, yield and ramp speed. AMAT’s third-quarter fiscal 2026 revenues reached a record $1.78 billion, up 22% year over year, while non-GAAP operating margin rose to 30.1% from 27.3%. More than 37,000 chambers are connected to AIx software for monitoring, diagnostics and predictive analytics.
AMAT’s AGS business also benefits from the doubling of its manufacturing space over the past several years. AMAT plans to double quarterly system output from current levels by 2028. AMAT added more than 1,500 manufacturing and AGS support employees in the third quarter of fiscal 2026 and is planning further capacity for demand through 2030. This visibility can improve supply-chain readiness and execution across customer ramps.
Applied Materials' recurring AGS revenues, more than 37,000 AIx-connected chambers and value-based pricing provide operating support for that durability. AGS is becoming an important part of Applied Materials’ long-term earnings model. Its combination of subscription services, parts demand, advanced AI-enabled services and expanding margins gives AMAT a growing stream of revenue associated with supporting customers throughout their manufacturing operations.
In the third quarter of fiscal 2026, China represented 28% of its total revenues in the third quarter of fiscal 2026, up from 27% in the second quarter, which includes Semiconductor Systems plus AGS revenues. AMAT now expects China revenues to increase in 2026, led by 28-nanometer foundry-logic investment. AMAT now expects AGS revenues to grow more than 20% in 2026 and maintain a sustainable long-term annual growth rate in the mid-teens.
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, who are ramping leading-edge nodes using ASML’s NXE:3800E EUV systems. Additionally, ASML Holding 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 the 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, securing a foothold in this high-growth segment.
AMAT’s Price Performance, Valuation and Estimates
Applied Materials shares have surged 102.6% year to date, outperforming the Zacks Electronics - Semiconductors industry’s appreciation of 36.7%.
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 9.20X, which is much above the industry’s P/S of 5.14X. 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 87%. The estimates have been revised upward in the past 60 days.
Image Source: Zacks Investment Research
Applied Materials currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.