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Applied Materials (AMAT) is trading modestly lower despite reporting strong Q2 (Apr) results last night. The company continued its long streak of EPS upside, while revenue increased 11.4% yr/yr to $7.91 bln, nicely above expectations. Guidance was also particularly strong, with Q3 EPS of $3.16-3.56 and revenue of $8.45-9.45 bln coming in well above expectations. AMAT also raised its CY26 growth outlook for its semiconductor equipment business to more than 30% from more than 20%.

• AI compute infrastructure buildout and increasing AI workload complexity continue to fuel demand. Last quarter, AMAT said cleanroom space would pace the rate of industry investment, but customers are now finding ways to reallocate or create space, driving incremental equipment requests for 2026 and supporting the raised CY26 outlook.
• This unprecedented demand environment is also creating significant visibility, with AMAT's largest customers providing rolling eight-quarter forecasts to help prepare capacity and service resources for upcoming ramps. Leading indicators have also strengthened, including higher cloud service provider capex and most leading-edge logic and DRAM fabs running at full capacity.
• Results were fueled by the market shifting toward AMAT's leadership areas, including leading-edge foundry/logic, DRAM, and advanced packaging. Semiconductor Systems delivered record revenue of $5.97 bln, above guidance, driven by record foundry revenue, DRAM revenue growth of 18% yr/yr to $1.7 bln, and accelerating advanced packaging demand.
• Non-GAAP gross margin expanded 80 bps yr/yr to 50.0%, its highest level in more than 25 years, driven by value-based pricing on differentiated products and manufacturing cost improvements. Operating margin also expanded 140 bps yr/yr to 32.1%.
• AMAT also noted that agentic AI is offering another tailwind for wafer fab equipment demand, as these models are more CPU-intensive and increase demand for DRAM and NAND.

Briefing.com Analyst Insight

This was a strong quarter for AMAT. Results exceeded expectations, and management also spoke more favorably about long-term demand, customer visibility, and sustained growth into 2027 and beyond. The spending mix is shifting toward AMAT's areas of strength, including leading-edge foundry/logic, DRAM, and advanced packaging, which management expects to account for more than 80% of year-over-year wafer fab equipment spending growth in 2026, with a similar profile in 2027. What stood out most was the outlook, particularly the increased customer visibility, stronger leading indicators, continued demand across AI-enabling chips, and the emergence of agentic AI as another tailwind. AMAT is also executing well, with gross margin reaching its highest level in more than 25 years and expected to remain above 50% in Q3. Overall, the record results and stronger outlook reinforce AMAT as a major beneficiary of AI-driven semiconductor equipment demand. The modestly lower reaction does not appear to reflect fundamentals, but rather the stock's strong run into the report and a broader pullback in AI/semi names as investors digest the recent surge.