Applied Materials lifts 2026 packaging growth forecast to 70%

Applied Materials now expects its packaging business to grow more than 70 percent in 2026, up from a prior forecast of 50 percent, as AI demand for chiplet and high-bandwidth memory integration strains back-end capacity.

Applied Materials Chief Executive Officer Gary Dickerson said the revised outlook reflects accelerating orders for advanced packaging tools from foundries and memory makers, according to the company.

The upgrade follows a record fiscal third quarter in which revenue rose 25 percent year over year to $9.12 billion and adjusted earnings reached $3.50 a share, beating the $9.00 billion and $3.40 analysts expected. Management guided fiscal fourth-quarter revenue to a $10.25 billion midpoint, with adjusted EPS of $4.02.

The packaging boom is reshaping the semiconductor equipment market, where Applied Materials competes with Lam Research and Tokyo Electron. With the stock down 27 percent from its June peak and trading at 43.8 times forward earnings, investors are weighing whether the AI-driven cycle can sustain the growth already priced into the shares.

Packaging Becomes the New Bottleneck in AI Hardware

As monolithic chip scaling slows, chipmakers are stacking dies and stitching together chiplets to raise performance, pushing advanced packaging to the center of the AI supply chain. Applied Materials' tools for hybrid bonding, through-silicon vias and wafer-level planarization sit at the heart of that shift, alongside outsourced packagers such as ASE and Amkor. Foundries including TSMC are expanding back-end capacity to meet orders from AI chip designers such as Nvidia.

The transition to gate-all-around transistors (a structure that wraps the gate around the channel to cut leakage) and the ramp of high-bandwidth memory, or HBM, generations HBM3e and HBM4 are compounding demand. Memory makers including Micron Technology and Samsung Electronics are reallocating wafer capacity toward HBM, which requires exceptional planarity and thin-film uniformity. DRAM equipment accounted for 29 percent of Applied Materials' Semiconductor Systems segment sales in the fiscal second quarter.

Growth Baked Into a Premium Valuation

The raised packaging outlook extends a broader equipment upcycle. Applied Materials projects its semiconductor equipment business will grow more than 30 percent in calendar 2026, and industry group SEMI forecasts equipment sales rising 9 percent this year and 7.3 percent in 2027.

The question for investors is whether the shares have run ahead of the cycle. Applied Materials trades at 43.8 times forward earnings, roughly double its five-year average of 21.2, after the stock nearly doubled in 2026 before pulling back. The consensus price target of $603 implies about 12 percent upside from current levels, a modest premium for a company guiding 50 percent-plus growth.

For investors, the packaging upgrade is a direct read on AI hardware demand: every advanced chip that ships needs more back-end processing, and Applied Materials captures that spend across deposition, planarization and inspection. The risk is timing — if hyperscalers pause capacity additions after a rapid buildout, equipment orders could slow faster than the guidance implies. Applied Materials reports fiscal fourth-quarter results in November, when management's 2027 outlook will test whether the cycle has legs.

This article is for informational purposes only and does not constitute investment advice.