Applied Materials, Inc. (AMAT Quick QuoteAMAT - Free Report) reported fourth-quarter fiscal 2026 non-GAAP earnings of $4.16 per share, beating the Zacks Consensus Estimate by 2.46%. Earnings surged 92% from $2.17 per share a year ago, supported by robust demand for advanced chipmaking equipment and stronger profitability.

Revenues climbed 53% year over year to a record $10.41 billion, surpassing the consensus estimate by 1.11%. Dynamic random access memory (DRAM) accounted for 33% of Semiconductor Systems revenues as AI-related demand accelerated investment in memory and advanced packaging.

AMAT Rides on Expanding AI Infrastructure Investments

Applied Materials said demand for advanced chips continues to outstrip supply, encouraging chipmakers to expand fabrication capacity. In fiscal 2026, revenues grew 21% to $34.45 billion and non-GAAP earnings rose 37% to $12.89 per share, extending the company's growth streak to seven years. Leading-edge foundry-logic, DRAM and advanced packaging remain investment priorities.

Management expects wafer fabrication equipment spending to grow more than 30% in 2027 and sees opportunities to outperform the market. Major customers are providing rolling eight-quarter forecasts and placing orders earlier, improving visibility into demand. The company expects advanced packaging revenues to grow around 90% in 2026.

Applied Materials' Semiconductor Systems Sales Set Records

Semiconductor Systems revenues increased 64% year over year to $8 billion, reflecting record sales in Korea and Taiwan. Foundry and logic applications generated 58% of segment revenues, while flash memory contributed 9%.

The business posted record DRAM and advanced packaging revenues, along with new highs in deposition, etch, chemical mechanical polishing and process control. Non-GAAP operating margin reached 39%, up from 29.6% in the year-ago quarter, indicating substantial operating leverage as equipment volumes expanded.

AMAT's Services Business Extends Its Growth Streak

Applied Global Services recorded revenues of $1.90 billion, up 26% year over year, with record results in both services and spare parts. The segment's non-GAAP operating margin improved to 30.5% from 28.8%, while gross margin rose to 35.1% from 34.1%.

Applied Materials is also expanding its connected-services capabilities. More than 37,000 equipment chambers use its AIx platform, with connected installations growing more than 20% annually. Other revenues, including Display, totaled $517 million compared with $415 million a year earlier.

Applied Materials Expands Profitability on Favorable Mix

Non-GAAP gross margin increased 250 basis points year over year to 50.6%, helped by favorable product mix and higher pricing. Non-GAAP operating margin climbed 670 basis points to 35.3%, marking the 14th consecutive quarter of year-over-year gross margin expansion.

Non-GAAP operating expenses rose 20% to $1.59 billion, but declined as a share of revenues by 430 basis points to 15.2%. Non-GAAP operating income reached $3.68 billion compared with $1.95 billion in the prior-year quarter. Non-GAAP net income grew 92% to $3.32 billion.

AMAT's Cash Generation Supports Larger Share Buybacks

Applied Materials generated record operating cash flow of $3.30 billion. Capital spending of $684 million left non-GAAP free cash flow of $2.62 billion, up from $2.04 billion a year ago. The company repurchased $2 billion in stock and paid $421 million in dividends during the quarter.

At the end of the fiscal year, cash and investments totaled $14.10 billion, while total debt was $6.53 billion. Applied Materials had $10.80 billion remaining under its buyback authorization and plans to return 80% to 100% of free cash flow to shareholders over time.

Applied Materials Broadens Its Innovation and Capacity Plans

The company unveiled its EPIC Center for collaborative semiconductor research and added Intel, KIOXIA, Besi and UCLA as partners, bringing announced partnerships to 15. The initiative aims to speed development of advanced transistors, memory and packaging processes.

To meet increasing demand, Applied Materials is investing to double systems output from fourth-quarter fiscal 2026 levels by 2028. Management is tracking more than 20 fab ramps and production-line expansions in 2027 and plans to more than double manufacturing and laboratory capacity by 2030.

AMAT Projects Further Growth in Q1

For the first quarter of fiscal 2027, Applied Materials expects revenues of approximately $11.10 billion, plus or minus (+/- $500 million), suggesting 58% year-over-year growth at the midpoint. Non-GAAP earnings are projected at $4.35 per share, (+/- 20 cents), implying 83% growth. The quarter will contain 14 weeks.

Semiconductor Systems revenues are forecast at approximately $8.70 billion, while Applied Global Services is expected to reach $2 billion. Management projects a non-GAAP gross margin of 50.8%, operating expenses near $1.70 billion and a non-GAAP tax rate of approximately 13%.

AMAT’s Zacks Rank & Stocks to Consider

Applied Materials currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Computer and Technology sector include Hewlett Packard Enterprise (HPE Quick QuoteHPE - Free Report) , Analog Devices (ADI Quick QuoteADI - Free Report) and NVIDIA (NVDA Quick QuoteNVDA - Free Report) . Each stock presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

HPE shares have gained 108.9% year to date. Hewlett Packard Enterprise is set to report fourth-quarter fiscal 2026 results on Nov. 23.

Shares of Analog Devices have risen 45.5% year to date. Analog Devices is slated to report fourth-quarter fiscal 2026 results on Nov. 24.

NVIDIA shares have lost 4.2% year to date. NVIDIA is set to report third-quarter fiscal 2027 results on Nov. 17.