Key Takeaways:
Applied Materials reports fiscal third-quarter earnings Thursday after the close, with analysts projecting revenue of $9 billion, up 23.3% from a year earlier.
"We expect Applied Materials to beat estimates and raise guidance," RBC Capital analysts wrote, pointing to strength in DRAM, high-bandwidth memory and advanced packaging where the company holds a leading position.
The company guided non-GAAP earnings of $3.36 a share, up 35.5% from a year earlier, with the most accurate estimate at $3.41. Applied Materials beat consensus in each of the past four quarters, averaging a 6% surprise. In the fiscal second quarter, revenue rose 11% to $7.9 billion, with DRAM sales of $1.7 billion up 18% and gross margin at 50%.
Options traders price a 10.39% post-earnings move, the widest expected swing among chip equipment makers this week. The stock, up 110% this year, trades at 43.8 times forward earnings, more than double its five-year average of 21.18.
Management expects leading-edge foundry-logic, DRAM and advanced packaging to drive more than 80% of year-on-year wafer fabrication equipment growth in calendar 2026, with the semiconductor equipment business growing more than 30%. The Applied Global Services unit should benefit from higher fab utilization and a growing installed base, while the shift to gate-all-around transistor architectures opens new demand for deposition and etch tools.
DRAM remains a key driver, with customers investing in 6F² nodes and high-bandwidth memory for AI workloads. Management expects DRAM and advanced packaging to be central to wafer fabrication equipment growth through 2027.
RBC Capital reiterated an Outperform rating with a $520 price target, while Stifel and Mizuho both raised targets to $650. Cantor Fitzgerald holds the highest target at $850. The stock trades at $539, down from a year-to-date high of $740 reached in July, though it has recovered from a $434 low after bottoming in July.
The report comes as the broader AI trade faces a make-or-break week, with Coherent, Cerebras Systems and Lumentum Holdings among names carrying double-digit implied moves. Applied Materials competes with KLA, Lam Research and Camtek across wafer fabrication equipment and inspection, with its portfolio spanning deposition, etch and materials engineering.
A beat and raised guidance would reinforce the AI infrastructure spending thesis that has driven the stock's 110% rally this year. Investors will watch Thursday's call for updated calendar 2026 systems growth and margin commentary, with the premium valuation leaving little room for disappointment.
This article is for informational purposes only and does not constitute investment advice.
