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Can Semiconductor Systems Drive AMAT's Next Growth Phase?
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Key Takeaways
Applied Materials' Semiconductor Systems revenues rose 27% year over year to $7.04 billion in Q3 fiscal 2026.
AMAT's operating margin expanded to 38% from 33.2% as advanced chip technologies strengthened.
AMAT forecasts fiscal Q4 Semiconductor Systems revenues of $7.9 billion, up 62% year over year.
Applied Materials (AMAT - Free Report) is gaining from rising demand for advanced chips used in artificial intelligence (AI) infrastructure, especially in its Semiconductor Systems business. In the third quarter of fiscal 2026, Semiconductor Systems generated revenues of $7.04 billion, up approximately 27% year over year.
Growing investment in leading-edge foundry-logic, dynamic random-access memory (DRAM) and advanced packaging is creating opportunities for the company’s wafer fabrication equipment, while rising manufacturing complexity supports demand for differentiated process technologies.
Applied Materials is expanding its technology portfolio to capitalize on these opportunities. Its Centris Spectral SiN ALD system supports advanced logic manufacturing, while enhanced Centura Prime epitaxy and Producer Avila 2 PECVD systems target DRAM performance and higher-layer-count high-bandwidth memory.
Beyond revenue growth, Semiconductor Systems is strengthening Applied Materials’ profitability. Its non-GAAP gross margin increased to 55.4% in the third quarter from 53.5% a year earlier. The operating margin expanded to 38% from 33.2%, reflecting the value of its technology portfolio and operating leverage.
AMAT anticipates fourth-quarter fiscal 2026 Semiconductor Systems revenues to be approximately $7.9 billion, suggesting 62% year-over-year growth. The outlook indicates that demand across leading-edge logic, DRAM and advanced packaging could sustain strong near-term momentum.
How Competitors Fare Against AMAT
Applied Materials faces competition from Lam Research (LRCX - Free Report) , KLA Corporation (KLAC - Free Report) and other semiconductor equipment suppliers, although their primary areas of specialization differ. 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.
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. Although KLA does not compete directly with AMAT across its entire Semiconductor Systems portfolio, both companies can benefit from rising investment in advanced logic, high-bandwidth memory and advanced packaging.
AMAT’s Price Performance, Valuation and Estimates
Applied Materials shares have climbed 59.1% year to date, outperforming the Zacks Computer and Technology sector and the Zacks Electronics - Semiconductors industry’s appreciation of 15.9% and 18%, respectively.
AMAT YTD Performance Chart
Image Source: Zacks Investment Research
The rise in the stock price has made AMAT trade at a premium. Currently, AMAT has a price-to-sales (P/S) multiple of 7.11X, which is much above the industry’s P/S of 4.63X. 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 indicates year-over-year growth of 87%. The estimates have remained unchanged for the past 30 days.
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Can Semiconductor Systems Drive AMAT's Next Growth Phase?
Key Takeaways
Applied Materials (AMAT - Free Report) is gaining from rising demand for advanced chips used in artificial intelligence (AI) infrastructure, especially in its Semiconductor Systems business. In the third quarter of fiscal 2026, Semiconductor Systems generated revenues of $7.04 billion, up approximately 27% year over year.
Growing investment in leading-edge foundry-logic, dynamic random-access memory (DRAM) and advanced packaging is creating opportunities for the company’s wafer fabrication equipment, while rising manufacturing complexity supports demand for differentiated process technologies.
Applied Materials is expanding its technology portfolio to capitalize on these opportunities. Its Centris Spectral SiN ALD system supports advanced logic manufacturing, while enhanced Centura Prime epitaxy and Producer Avila 2 PECVD systems target DRAM performance and higher-layer-count high-bandwidth memory.
Beyond revenue growth, Semiconductor Systems is strengthening Applied Materials’ profitability. Its non-GAAP gross margin increased to 55.4% in the third quarter from 53.5% a year earlier. The operating margin expanded to 38% from 33.2%, reflecting the value of its technology portfolio and operating leverage.
AMAT anticipates fourth-quarter fiscal 2026 Semiconductor Systems revenues to be approximately $7.9 billion, suggesting 62% year-over-year growth. The outlook indicates that demand across leading-edge logic, DRAM and advanced packaging could sustain strong near-term momentum.
How Competitors Fare Against AMAT
Applied Materials faces competition from Lam Research (LRCX - Free Report) , KLA Corporation (KLAC - Free Report) and other semiconductor equipment suppliers, although their primary areas of specialization differ. 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.
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. Although KLA does not compete directly with AMAT across its entire Semiconductor Systems portfolio, both companies can benefit from rising investment in advanced logic, high-bandwidth memory and advanced packaging.
AMAT’s Price Performance, Valuation and Estimates
Applied Materials shares have climbed 59.1% year to date, outperforming the Zacks Computer and Technology sector and the Zacks Electronics - Semiconductors industry’s appreciation of 15.9% and 18%, respectively.
AMAT YTD Performance Chart
Image Source: Zacks Investment Research
The rise in the stock price has made AMAT trade at a premium. Currently, AMAT has a price-to-sales (P/S) multiple of 7.11X, which is much above the industry’s P/S of 4.63X. 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 indicates year-over-year growth of 87%. The estimates have remained unchanged for 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.