Applied Materials (AMAT Quick QuoteAMAT - Free Report) shares have lost 30.3% in the past month, underperforming the Zacks Electronics - Semiconductors industry and Zacks Computer and Technology sector’s decline of 19.5% and 13.2%, respectively.

AMAT One-Month Performance Chart

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Despite the decline in the stock price, AMAT is trading at a price-to-sales (P/S) multiple of 8.52X, much above the industry’s P/S multiple of 3.14X. The premium valuation is further justified by the Zacks Value Score of D.

AMAT Forward 12-Month (P/S) Valuation Chart

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Given the rise in share price and valuation combination, investors might ask: Should they buy, sell or hold the stock? Let’s discuss the fundamentals in detail.

AMAT Stock Declines in Tune With the Industry

The sell-off of the AMAT stock has been part of the broader industry, where its peers like Lam Research (LRCX Quick QuoteLRCX - Free Report) , KLA Corporation (KLAC Quick QuoteKLAC - Free Report) and ASML Holdings (ASML Quick QuoteASML - Free Report) have also declined as investors reassess semiconductor equipment spending expectations, take profits following a strong rally in AI-related stocks and become increasingly cautious about the sustainability of AI-driven capital expenditure growth.

However, the decline has been amplified by concerns over near-term supply-chain constraints, particularly after Lam Research's quarterly outlook indicated that supply limitations could weigh on shipments. ASML, LRCX and KLAC shares have lost 18.4%, 33.7% and 24.2%, respectively, in the past month. However, the ongoing supplier capacity expansion will ease the current situation shortly.

In the meantime, AI infrastructure and hyperscaler stocks are facing a sell-off as investors increasingly question whether massive AI investments will generate sufficient returns. Amid these developments, investors need to keep a close eye on AMAT’s ability to dodge these obstacles. Meanwhile, AMAT’s leading-edge foundry-logic, DRAM and advanced packaging technologies seem to remain in constant demand among its customers, so the underlying fundamentals are quite robust for this stock.

AMAT Rides on AI-Led WFE Demand

AMAT’s leadership in leading-edge foundry-logic, DRAM and advanced packaging, particularly HBM and 3D chiplet stacking, strengthens its exposure to rising AI computing requirements and fab capacity investments globally. AMAT also introduced six new chipmaking systems in the latest quarter, spanning DRAM and advanced packaging.

AMAT’s Centura Prime Epi targets faster, more power-efficient DRAM and HBM, while Producer Avila 2 supports higher-layer-count HBM. AMAT also introduced Opta Quad CMP, Nokota VMax 2 ECD and new eBeam systems addressing demanding packaging, plating, metrology and defect-analysis requirements for advanced architectures and yield optimization across fabs.

As the opportunity broadens beyond equipment sales, chipmakers race to increase output and yield, benefiting wafer fabrication equipment manufacturers like AMAT. Applied Materials expects advanced packaging revenues to grow more than 70% in 2026, while DRAM revenues, including HBM packaging, rose 52% year over year in the fiscal third quarter. Process diagnostics and control revenues are also expected to increase more than 50% this year overall through 2026.

AMAT’s AGS Business is Gaining Momentum

AMAT’s 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. For the fourth quarter of fiscal 2026, Applied Materials expects AGS revenues to be approximately $1.84 billion.

The company has nearly doubled manufacturing space over the past several years and 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 plans further capacity to meet demand through 2030. AMAT’s 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.

These factors are going to support both top- and bottom-line growth. The Zacks Consensus Estimate for fiscal 2026 revenues and earnings is pegged at $34.3 billion and $12.79 per share, respectively. This implies year-over-year growth of 21% and 36% in revenues and earnings, respectively. Estimates for the bottom line have remained unchanged for the past 30 days.

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Conclusion: Hold AMAT Stock Now

AMAT stock has declined in tune with the leading players of the WFE market, including Lam Research, ASML Holdings and KLA Corporation. However, Applied Materials benefits from AI-led investment in leading-edge foundry-logic, DRAM and advanced packaging, where rising process complexity supports demand for its equipment. New deposition and inspection technologies, value-based pricing and a growing services base strengthen its margin. These factors lead us to suggest that AMAT stock should be retained at present. However, investors need to keep a close eye on AMAT’s ability to dodge current obstacles. AMAT carries Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here