Story Stocks^®

Applied Materials (AMAT) is reaching new all-time highs following its blowout Q1 (Jan) results and particularly bullish outlook. The semi-cap equipment supplier delivered its largest EPS beat in two years, while revenue fell a better-than-expected 2.1% yr/yr to $7.01 bln. Looking ahead, AMAT's upside Q2 guide of EPS of $2.44-2.84 and revenue of $7.15-8.15 bln, implies a return to yr/yr growth and a clear reacceleration.

• On the bullish outlook, the build out of AI infrastructure is driving unprecedented spending across semiconductors, capacity, and R&D, and AMAT believes the semi industry could reach $1 trln in 2026, years earlier than prior forecasts.
• AMAT expects more than 20% semiconductor equipment growth in CY26, with demand back-half weighted as cleanroom availability paces shipments. HBM and 3D chiplet stacking are expected to be among the fastest-growing areas in 2026.
• Additionally, its largest customers are providing longer-term visibility to help AMAT align capacity and service support with their ramps, setting up 2027 to be another strong growth year.
• Semiconductor systems revenue declined 8% yr/yr to $5.14 bln, as revenue from China declined 7% yr/yr to $2.09 bln. Notably, revenue from Taiwan surged 45% yr/yr to $1.72 bln, about 25% of revenue.
• Applied Global Services delivered record revenue of $1.56 bln, up 15% yr/yr, driven by rising utilization and a growing installed base.
• Gross margin exceeded the midpoint of guidance by 70 bps and increased 20 bps yr/yr to 49.1%, supported by a richer mix and pricing, with further upside as the portfolio shifts to higher-value products.
• On the strong Q2 guide, customers were able to pull more capacity into 2026 than AMAT expected a quarter ago, though the ramp remains back-half weighted, setting up momentum to carry into 2027.

Briefing.com Analyst Insight

While AMAT's revenue declined yr/yr, the quarter was meaningfully better than expected, and the bigger story was its outlook. First, it was encouraging to see Taiwan revenue surge, helping offset softer China trends and suggesting the mix is shifting to ramps that can increasingly move results past China-driven declines. Now on to the outlook. Q2 guidance was a blow out, and that reflects customers bringing on more capacity than expected. The ramp is still back-half weighted, broadly aligning with peers LRCX and KLAC, but AMAT's view of more than 20% semiconductor equipment growth, improving visibility into 2027, and its belief that the industry could reach $1 trillion in 2026 all point to an accelerating cycle in the highest-value areas. With AI driving faster node transitions, rising complexity, and advanced packaging intensity, AMAT looks positioned to capture share where spending is growing fastest.