Applied Materials (AMAT) — Earnings Preview Memo
Key Points
| Theme | Details |
|---|---|
| Q4 2026 Preview | Street expects record revenue of ~$10.3B (+51% YoY), EPS ~$4.00, gross margin ~50.5%. |
| Guidance Momentum | Management has raised semi systems growth guidance multiple times in 2026: >20%, >30%, now "greater than that" (approaching +40%). |
| Growth Drivers | Leading-edge foundry-logic, DRAM (esp. HBM), and advanced packaging are >80% of WFE growth; all are AMAT share-gain areas. |
| Visibility & Demand | Rolling 8-quarter customer forecasts, 10+ new fabs tracked, conversations extend to 2030. Demand visibility is at all-time highs. |
| Services/AGS | AGS (services) business now expected to grow >20% in 2026, with sustainable mid-teens CAGR outlook. |
| Margins | Gross margin at record levels (>50%), driven by value-based pricing, richer product mix, and cost discipline. |
| Comparables | Q4 2025 was a soft comp (+4% YoY revenue), but Q4 2026 is set for a step-function acceleration (+51% YoY consensus). |
| Key Watch Items | Confirmation of >40% semi systems growth, sustainability of gross margin expansion, DRAM/packaging ramp, supply chain execution, and 2027 demand signals. |
Summary and Conclusions
Applied Materials enters its next earnings report with exceptional momentum. The company has repeatedly raised its 2026 growth outlook, with semi systems revenue now expected to grow well above 30% (approaching 40%), and AGS/services growth upgraded to >20%. Demand visibility is at unprecedented levels, supported by rolling 8-quarter customer forecasts and a global fab build-out driven by AI infrastructure.
The most important factors to watch in the upcoming print:
- Q4 2026 Revenue/EPS Beat: Consensus expects $10.3B revenue (+51% YoY) and $4.00 EPS. Management has guided above this, so upside surprise is possible.
- Gross Margin Trajectory: Margins are at record highs (>50%), with further improvement expected as higher-value products ramp. Any sign of margin plateauing or reversal would be notable.
- Segment Growth: Outperformance in leading-edge logic, DRAM (especially HBM), and advanced packaging is critical. These segments are driving >80% of WFE growth and are AMAT’s core share-gain areas.
- Services (AGS) Growth: AGS is running >20% YoY, above the long-term mid-teens model. Sustainability of this growth rate and incremental margin leverage are key.
- 2027 Outlook: With customer conversations extending to 2030 and new fab projects announced, any commentary on 2027 growth, cleanroom constraints, and supply chain readiness will be closely parsed.
- China/ICAPS Dynamics: China and ICAPS (mature nodes) are returning to growth after digestion; watch for confirmation of this trend and any impact from export controls.
Quarterly Financial Snapshot — Actuals and Consensus
Quarterly Results and Consensus (Q3 2025–Q4 2026)
| Quarter | Revenue ($M) | Gross Margin (%) | EBITDA ($M) | Net Income ($M) | EPS ($) | YoY Revenue Growth |
|---|---|---|---|---|---|---|
| Q4 2026 (consensus) | 10,299 | 50.5 | 3,777 | 3,243 | 4.00 | +51% |
| Q3 2026 | 9,004 | 50.1 | 3,195 | 2,703 | 3.44 | +25% |
| Q2 2026 | 7,692 | 49.3 | 2,534 | 2,138 | 2.69 | +11% |
| Q1 2026 | 6,880 | 48.4 | 2,133 | 1,751 | 2.15 | +0.1% |
| Q4 2025 | 6,670 | 48.1 | 2,016 | 1,671 | 2.06 | -7% |
| Q3 2025 | 7,212 | 48.3 | 2,275 | 1,909 | 2.35 | +3% |
*Consensus figures for Q4 2026; actuals for prior quarters.
Full-Year Financials — Actuals and Consensus
| Fiscal Year | Revenue ($M) | Gross Margin (%) | EBITDA ($M) | Net Income ($M) | EPS ($) | YoY Revenue Growth |
|---|---|---|---|---|---|---|
| FY2026 (consensus) | 34,246 | 50.0 | 11,840 | 10,205 | 13.18 | +21% |
| FY2025 | 28,264 | 48.7 | 8,960 | 7,552 | 8.40 | +4% |
| FY2024 | 27,126 | 47.5 | 8,259 | 7,116 | 8.58 |
Guidance and Management Commentary
Most Recent Guidance (Q4 2026)
| Metric | Guidance (Q4 2026) | Context / Notes |
|---|---|---|
| Revenue ($M) | $10,250 ± $500 | Up 51% YoY; sequential acceleration; record quarter expected |
| Non-GAAP EPS | $4.02 ± $0.20 | Up 85% YoY |
| Semi Systems Revenue | ~$7,900 | Up 62% YoY; driven by DRAM, leading-edge logic, advanced packaging |
| AGS Revenue | ~$1,840 | Up 22% YoY; services growth >20% |
| Other Revenue | ~$510 | Primarily display; expect ~$400M/quarter through 2027 |
| Gross Margin (%) | ~50.4 | Up 230 bps YoY; record level |
| OpEx ($M) | ~$1,580 | Q1 2027 will be a 14-week quarter, expect higher OpEx |
| Tax Rate (%) | ~11 | 13% modeled for 2027 due to global minimum tax |
Management Commentary Highlights
- Demand Visibility: "Rolling 8-quarter forecasts... conversations now extending to 2030."
- Growth Outlook: "Greater than 30% semi systems growth" now "greater than that"; "expect to outgrow the market."
- Segment Mix: "80% of WFE growth in 2026 and 2027 is leading-edge logic, DRAM, advanced packaging."
- Services: "AGS to grow more than 20% in calendar 2026 and deliver a sustainable long-term annual growth rate in the mid-teens."
- Margins: "Over 55% for our semi systems level and value-based pricing will continue to be a part of that."
- 2027 Outlook: "We expect another strong year"; "demand function led by AI to continue."
- Supply Chain: "Capacity in place to double quarterly system output from current levels by 2028."
Year-on-Year Comparables
- Q4 2025 Revenue: $6,670M (YoY -7%)
- Q4 2026 Consensus Revenue: $10,299M (YoY +51%)
- Q4 2025 Gross Margin: 48.1%
- Q4 2026 Consensus Gross Margin: 50.5%
Conclusion: Q4 2026 faces an easy comp (Q4 2025 was flat-to-down YoY), setting up for a major acceleration in reported growth.
What to Watch This Quarter
| Factor | Why It Matters |
|---|---|
| Semi Systems Revenue Growth | Confirmation of >40% YoY growth, outpacing WFE and peers |
| DRAM/Packaging Ramp | DRAM revenue up 52% YoY in Q3; advanced packaging up >70% YoY |
| Gross Margin Expansion | Record levels; sustainability and incremental improvement |
| Services (AGS) Growth | >20% YoY; margin leverage, recurring revenue, contract renewals |
| Supply Chain/Capacity | Execution on doubling output by 2028; ability to meet demand |
| 2027 Demand Signals | Customer forecasts, fab tracker, cleanroom constraints |
| China/ICAPS Recovery | Return to growth after digestion; impact of export controls |
| Process Control/Inspection | >50% YoY growth in PDC segment; pipeline of new products |
Management Quotes — Recent Tone
- "Demand strengthened again during the quarter. We see new projects being added by our customers on the factory side. We see CapEx forecast going up by our customers, and we see strong CapEx from the cloud service providers all announced."
- "We have a rolling 8-quarter forecast we get from our largest customers, which has been increasing all year, and we attribute that to the AI, artificial intelligence systems demand that's happening across the market."
- "Our semi systems gross margin is in the mid-50s. And we've increased our gross margin about 190 basis points. I have very high confidence we're going to continue to drive that higher because the value in winning the race for these inflections for our customers is very high."
Summary Table — Key Metrics to Watch Next Quarter
| Metric | Q4 2026 Consensus | Q4 2025 Actual | YoY Change | Notes |
|---|---|---|---|---|
| Revenue ($M) | 10,299 | 6,670 | +51% | Record quarter expected |
| Gross Margin (%) | 50.5 | 48.1 | +240 bps | Record level |
| Semi Systems Revenue ($M) | ~7,900 | Up 62% YoY | ||
| AGS Revenue ($M) | ~1,840 | Up 22% YoY | ||
| EPS ($) | 4.00 | 2.06 | +94% |
Bottom Line
Applied Materials is set to report a record quarter, with consensus and management both pointing to >50% YoY revenue growth and record margins. The company is benefiting from secular AI-driven demand, share gains in its core markets, and a robust services business. The key focus areas for the print are confirmation of the magnitude and sustainability of growth, margin expansion, and forward visibility into 2027 and beyond. The setup is favorable given easy comps and strong intra-quarter demand signals.
